Keystone XL: What it’s really all about

While discussions of TransCanada’s proposed Keystone XL pipeline tend to revolve around environmental impact of the oil sands and America’s need for a stable, secure oil supply, they tend to overlook the real reason projects of this scale are built: Money.

It’s been reported before that one of the main reasons Canadian oil producers want the pipeline built is because they’re currently oversupplying the markets they’re shipping to – primarily the Midwest – which suppresses the price they’re able to charge for it.

In a post on the Energy Collective this week, David Livingston takes a closer look at the market forces surrounding the pipeline:

Perhaps most salient, however, is the possibility that the pipeline will only marginally increase the overall supply of Canadian oil while delivering significant benefits to producers by boosting the market price of Canadian heavy crude. …

The significance of Keystone XL, then, is that it would allow oil to flow to the DOE administrative district known as “PADD 3”, including the gulf coast, where it then has the ability to be refined and/or shipped onwards to other markets.

In other words, “the Keystone XL drama is much more of a routing – rather than production – decision.”

Livingston cites a TransCanada report that estimates oil sands producers could see revenues increase by nearly $2 billion as a result of higher prices commanded by these new markets. Meanwhile, the U.S. would not necessarily have access to more Canadian oil, and the impact on emissions would be negligible.

Livingston’s conclusion?

As with any complex system, this is vulnerable to change – especially if Canadian supply quickly finds a means to link to Asian markets. Until then, however, there does not seem to be a compelling rationale for laying down pipe for the sake of allowing our northern neighbors to earn more for the oil that they already plan to sell.

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