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Who really benefits from Keystone XL

Who really benefits from Keystone XL

Keystone XL was back in the spotlight this week as the US senate failed to pass the controversial pipeline bill by 1 vote. In a 59-41 decision, the Keystone bill goes back to the drawing board and awaits resurrection next year when the Republicans take control of the Senate and gain 8 more seats. That would give them more than the 60 votes required to pass the bill through the Senate and possibly more than the 67 votes required to avoid a presidential veto. 

Of course, the vote was largely symbolic since Keystone XL is currently stalled in the Nebraska state courts, where TransCanada awaits a decision on the proposed routing. Ironically, the Keystone bill was brought forward to the US congress by Democratic Senator Mary Landrieu. Landrieu was hoping to boost her chances of being re-elected in the state of Louisiana - a state that heavily relies on the oil industry.

Had the bill passed the Senate, it was likely to be shot down by President Obama, who noted in a speech in Myanmar last week that Keystone XL benefits Canadian oil producers, and not the average American consumer.

“[Keystone XL] is providing the ability of Canada to pump their oil, send it through our land, down to the Gulf, where it will be sold everywhere else...”

- US President Barack Obama, November 14, 2014

But does it really benefit Canadian oil producers? Canada currently produces about 4.5 million barrels per day (bpd) of oil. That number is expected to grow by another 2 million barrels in the next 15 years, with almost all of that growth coming from the oil sands. Crude transport by rail is expected to grow to 800,000 bpd in the next 2 years, but most of that is within Canada. Rail transport to the US remains stuck at about 165,000 bpd. Canada currently exports about 3 million bpd to the US, but almost all of it (95%) gets transported by pipeline. So what's the problem?

GROWTH IN CANADIAN OIL PRODUCTION (SOURCE: CANADIAN ASSOCIATION PETROLEUM PRODUCERS)

GROWTH IN CANADIAN OIL PRODUCTION
(SOURCE: CANADIAN ASSOCIATION PETROLEUM PRODUCERS)

CANADIAN CRUDE OIL EXPORTED TO US BY RAIL (SOURCE: NATIONAL ENERGY BOARD OF CANADA)

CANADIAN CRUDE OIL EXPORTED TO US BY RAIL
(SOURCE: NATIONAL ENERGY BOARD OF CANADA)

The problem is the 50 refineries located in the US Gulf Coast. Gulf Coast refineries used to get much of their feedstock from Saudi Arabia, which is traditionally one of the most expensive crude streams in the world. So the Gulf Coast refineries have adapted their process to take in heavier feedstock from Mexico and Venezuela, both which have declining production. Since Canadian crude oil is $20-40 per barrel cheaper than domestic or middle-eastern crude, Gulf Coast refineries have a thirst for Canadian oil.

 
CRUDE OIL DEMAND BY REGION [THOUSAND BARRELS/DAY] (SOURCE: CAPP, STATS CAN, EIA)

CRUDE OIL DEMAND BY REGION [THOUSAND BARRELS/DAY]
(SOURCE: CAPP, STATS CAN, EIA)

 

But Canada only sends 120,000 bpd to the Gulf Coast, despite the high demand.

So why can't we send more crude to the Gulf Coast? Because the pipelines from the north to central US are largely at capacity.

So why can't we send it by rail? Because 800,000 bpd of Bakken crude oil from North Dakota gets transported by rail, sucking up most of the rail capacity coming from the north. And transporting crude oil by rail to Texas is expensive, estimated at $20-23 per barrel for the 17 day ride from central Alberta.

So what's the solution? Build a new pipeline, a big one, from Alberta down to the US Gulf Coast.

Enter TransCanada's Keystone XL pipeline. Once completed, Keystone XL will have the capacity to carry an additional 830,000 bpd down to the refining hub in the US Gulf Coast, bringing costs down for big US oil companies. 

DID YOU KNOW:
Canadian crude oil transported to the US by pipeline cannot be exported outside of North America since it mixed with US produced crude oil, who's export is banned under the US Energy Policy and Conservation Act. However, US refiners are free to export refined products, such as gasoline or diesel.

KEYSTONE XL PIPELINE ROUTING (SOURCE: TRANSCANADA)

KEYSTONE XL PIPELINE ROUTING (SOURCE: TRANSCANADA)

Ironically, about 65% of Americans are in favour of Keystone XL. The American public would rather reduce their dependancy on middle-eastern crude and instead prefer to buy their oil from their friendly neighbours to the north.

So why are Democrats and President Obama so against the pipeline? It might be legitimate concerns over global warming and a genuine desire to wean Americans off fossil fuels. Or it might be the hundreds of millions in funding they receive from enviro-billionaires, such as Tom Steyer, an ex-hedge fund manager who made his fortunes selling coal to the Chinese. Steyer, who donated $75 million to the Democratic party last year, acts as an advisor to Obama, helping him set-up a $100 billion renewable energy program as part of the 2009 stimulus package. Conveniently, much of those billions have been funneled to Steyer's new company, EFW Capital, and many other green venture capitalist firms run by other Obama supporters.  

So maybe Keystone XL isn't so much about Canada after all.  

West Texas Intermediate hits a fresh 5 year low

West Texas Intermediate hits a fresh 5 year low

Alberta's oil sands expected contribute $4 trillion to Canada's GDP over the next 25 years

Alberta's oil sands expected contribute $4 trillion to Canada's GDP over the next 25 years