Keystone XL, gasoline prices and politicians

The proposed Keystone Gulf Coast Expansion Project is a 1,661 mile (2,673-kilometre), 36-inch crude oil pipeline that would begin at Hardisty, Alta. and extend southeast through Saskatchewan, Montana, South Dakota and Nebraska. Source:

I’m not exactly sure why I can’t seem to let go of this topic. Maybe it’s because I sat through another news cycle with Republican candidates vociferously maintaining that President Obama could somehow affect short term gasoline prices. Once again they cited how the policies of his “anti business” administration were limiting the production of “American Oil” and if only the Keystone XL pipeline had been approved we’d be paying $2.00 at the pump this month.

First and foremost, simply based on how oil prices are determined this is categorically impossible. The short version of why increasing American oil production won’t translate to lower gasoline prices is that oil prices are determined globally. Remember, oil is a fungible commodity and oil from US territories contributes only 10% to the total world supply. Even a large increase in US production would have only a small impact on oil prices.

In my last posting I noted that in 2009 the Energy Information Agency released a study showing that opening the Outer Continental Shelf to unlimited drilling would result in a 3 cent decrease in gasoline by 2030.

TransCanada is building the Keystone Pipeline and a study appearing on their own website by the Perryman Group echoed the minimal impact the Keystone XL pipeline would have on gasoline prices stating “In effect, the Keystone XL Project facilitates a long-term increase in marginal supply, which will have a modest price effect permeating the entire economy.” Strictly from assessing the impact on oil prices it simply doesn’t matter where the Keystone enters the global market.

This is not to say Keystone XL is without benefits and increasing oil to American refineries would certainly result in more jobs and increased revenues for the oil companies but it is prudent not to forget that under United States law the oil belongs to the oil companies and not America.  Oil companies can, do and will continue to export oil from North American sources to overseas markets.

The Republican candidates continue to maintain that the Administration’s energy policies are “anti business” and are limiting domestic oil production. Notwithstanding the fact that domestic production has a minimal impact on prices at the pump, are Obama’s energy policies really holding back the oil industry? If they are, is there some metric that would show the degree of impact of his policies? Understanding that this is really a complex question and being fundamentally a simple person, I looked for a simple indicator and have settled on the number of oil rigs in production. Maybe naively, it seems that the number of oil rigs in operation is a good indicator since they indicate the activity of oil companies independent of the success of the particular well.

If Obama’s policies are hurting the oil industry then one would expect to see a decrease in operating oil rigs. As seems evident from the following chart, the opposite is true. Since Obama entered the office in 2008 there has been a precipitous, 158% increase in the number of rigs operating in the United States. My interpretation is that dispels the position that the Administration’s energy policies are anti business or more narrowly, they are not anti-oil drilling in the United States.

The Republicans who are claiming that more drilling in the United States and building the Keystone XL would result in short term, lower gas prices at the pump are not unintelligent. I’m almost sure they understand the concept of fungible commodities and how that translates to the global oil market. Certainly Mitt Romney with his business background understands. If they don’t then it is a scary thought that they might actually become president. On the other hand, if they do understand then they must also know that they’re making patently false statements. Okay, I’ll drop the euphemism, they’re lying.

It’s a sad commentary when candidates for national office will intentionally spin a concept to the point of absurdity knowing full well that what they’re saying is untrue. It’s an even sadder commentary that it may work for them because the electorate doesn’t understand the issues as well as they should.

There’s something very dark about a person who knows more about a particular subject than someone else and yet intentionally distorts that knowledge in an attempt to manipulate that person to adopt a certain position. Shouldn’t a person use their knowledge to make a positive impact in the world rather than for manipulation? When did truth become a liability in our society?

The only true defense to combat intellectual manipulation and demagoguery is knowledge. If the electorate better understood the facts of issues facing us then the misrepresentation made by candidates would become ineffective as a campaign tactic.

The problem is no one is born with knowledge. It’s something that must be constantly and actively pursued and with so many distractions in today’s connected society maybe it’s too much to ask. So maybe this is the reality, “Build the Keystone pipeline and I’ll pay $2.00 for a gallon of gas next month. Yeah, right on! Now, when do the Kardashians come on?”


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