Wednesday, August 8, 2012

Love It or Hate It, You Need the Keystone Pipeline

The controversial Keystone pipeline is in the news again after the Canadian pipeline company, TransCanada, secured last three permits from the U.S. Army Corps of Engineers to extend the southern leg of the pipeline to the Gulf Coast. This move upends the January 2012 rejection of the Keystone XL pipeline by the U.S. Department of State, which was reportedly based on insufficient time to evaluate the pipeline’s environmental impact. Unpopular among environmental groups in America, the Keystone pipeline’s new extension is likely to generate another wave of disagreements and protests over a potentially damaging impact of the heavy and low-quality Canadian oil on ecosystem of the U.S. Some of my friends have been eager to express their disappointment and frustration in various social media outlets on the approval of the Canadian pipeline at what they see the time of hastening rate of climate change.

But Keystone is, in many ways, inevitable for the U.S. The country is still over 90 percent reliant on gasoline for transportation and it seems like people here tend to forget (or to not know) how the recent history of U.S. oil production, trade and refining have permanently changed the types of oil used in the U.S.  Steady decline of U.S. sweet crude oil output from the early 1990s through the middle of 2000s have led to a change in the relationship of the West Texas Intermediate (WTI) benchmark towards other regional benchmarks, shutdown of many refineries in the Gulf Coast and reversal of directions of some, as well as to an increased demand for more offshore imports of sweet crude to meet local refinery needs, including rapidly rising Canadian supplies.

As imports of Canadian synthetic crude oil to the U.S. began to increase, Gulf Coast refineries were adjusted to handle heavier crudes from the northern neighbor. In fact, the recent surge in shale oil development in places such as North Dakota, which ramped up domestic sweet crude production again, is likely to find a good market abroad since “the Gulf Coast refining hub is more suited to process heavier crudes,” in the words of the recently appointed head of the Energy Information Administration (EIA), Adam Sieminski. Canadian oil, which stood at number one in U.S. net crude imports (29 percent) in 2011, is bound to increase its market share in the U.S. via the existing Keystone pipeline and its planned southern leg. So, what to do with the dirty Canadian oil? The answer lies in oil (gasoline) consumption of every American, who cannot, and should not, separate the influx of dirty oil from Canada from his/her own contribution to its rising supply to the U.S.

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