(Christian Science Monitor) “The firms involved have asked the US State Department to approve this project, even as they’ve told Canadian government officials how the pipeline can be used to add at least $4 billion to the US fuel bill,” Philip K. Verleger, president of PKVerleger LLC, aColorado consulting firm that specializes in research on oil market economics, wrote in a Minneapolis Star-Tribune commentary last March.
US farmers who spent $12.4 billion on fuel in 2009 could see those costs rise to $15 billion or higher if the pipeline goes through, he projects. At least $500 million of the added cost “would come from the Canadian market manipulation,” he wrote.
“Millions of Americans will spend 10 to 20 cents more per gallon for gasoline and diesel fuel as tribute to our ‘friendly’ neighbors to the north,” the highly respected Dr. Verleger wrote. “The Keystone XL pipeline will move production from Canadian oil sands to a deepwater port from where it can be exported.”
But that is not merely Verleger’s opinion. It’s based on findings of the economic consultant
Over the past five years, exports from the US Gulf Coast have soared as refiners sitting in tax-free zones near Port Arthur, Texas, have shifted production away from gasoline and toward higher-margin diesel. Since 2007, overall US exports of diesel and other products have jumped 134 percent, the US Energy Information Administration reports. Of US exports, two-thirds is shipped abroad from Gulf Coast refineries – now more than 2 million barrels a day and up from just a quarter of today’s level a decade ago
In addition to winning higher prices for Canadian oil in the Gulf, the pipeline would boost revenues by shuttling existing oil supplies out of the Midwest – boosting prices, the Canadian study and testimony also show.
“So seven shippers or seven producers are, in your view, pursuing this strategy in order to increase the [Midwest oil market] and Ontario prices. Do I have it right?” D. Davies, a Canadian energy board examiner asked Thomas Wise, the Purvin & Gertz expert who authored the economic analysis for TransCanada.
“If a minority of the barrels were sold at the Gulf Coast at a Gulf Coast price, that would have the effect of raising the price not only in the Midwest and Ontario but in Western Canada,” Mr. Wise responded.
“While the full nature of the arrangements agreed upon by the Canadian shippers is unclear, there is clear indication that there is a coordinated ‘strategy’ among Canadian suppliers to gain higher prices,” Senator Wyden wrote Jonathan Liebowitz, chairman of the FTC in an April 6, 2011, letter. “This will have the effect of manipulating supply levels allowing prices of oil refined in [the Midwest oil market] to rise and ultimately benefitting the Canadian companies with higher prices..”
Now let’s discuss what American oil companies are doing with their refined oil products:
“Turns out the place where gas prices tend to be the highest in the nation, San Francisco….s just across the Bay from five major oil refineries that together are the largest exportersof petroleum products in the nation (Brookings Institution, New York Times, March 8, 2012). In 2010, the period of the report, the five refineries exported $7.8 billion in petroleum products, an increase of 10% over prior year. Other refineries on the West Coast have also experienced booming export sales. Last December alone, West Coast refineries exported over one million barrels of gasoline, eight times as much as in 2007.
The Census Bureau’s trade report confirms the trend nationwide: in January exports of petroleum products jumped 16.8% to $8.9 billion from December’s $7.6 billion, and were up 8.8% from January last year.
Why? Because that’s where the money is. Domestic demand is stagnating. In California, based on data from the State Board of Equalization, which collects taxes on motor fuels, gasoline sales have actually slid 14% from 2006 through last year.
“Our options were to reduce production, lay off workers, close refineries, or find markets for our products,” said Tupper Hull, a vice president at the Western States Petroleum Association. And those markets are in Mexico, Brazil, China, and other developing countries where demand for refined petroleum products is growing.
Oil and refined petroleum products are worldwide commodities whose prices are determined by the markets, not Newt Gingrich. Or President Obama. Central banks, however, are another story. They’ve handed trillions to their cronies for the purpose of driving up asset prices. And some of this money has hit oil. For just how helpful this has been, read…. The Fed’s Rain Dance at the Bottom of the Stairs.”
- black swan