Have a look at the satellite image at right. That's Cushing Oaklahoma, population... roundabouts 10,000. Cushing is an industrial town in the American heartland, the self-proclaimed "pipeline cross roads of the world." Those white circles are oil tanks - hundreds of them - holding millions of barrels of oil, all flushed into the American midwest by the Keystone Pipeline.
Yes, that Keystone Pipeline. The much contested Keystone XL Pipeline is just a later phase of the same project. The existing pipeline became operational in 2010 and presently connects the Alberta Tar Sands with Cushing, Oklahoma. The proposed Keystone XL expansion would extend the network, linking Cushing with Gulf Coast refineries. Oil producers from Alberta on south are eager to build the XL pipeline to relieve the oil glut in Cushing.
You read that correctly: oil glut.
In the middle of the American Midwest there is a town so stuffed to the gills with oil that the major economic activity there is storing the stuff. Huge tank farms, holding somewhere between 5% and 10% of the US crude oil supply, stretch out to the south as a 36 inch steel pipe delivers hundreds of thousands of barrels of sticky black sludge day and night.
Pipelines lead into Cushing but very few lead out; as a result, oil in the Cushing area is cheap. Back in 2009 Saudi Arabia announced that it would stop benchmarking its oil prices off of those settled in Cushing because the glut there was forcing prices down, sometimes as much as $12 per barrel below the global market price. Without outgoing pipelines, oil mostly leaves Cushing on trucks bound for mid-western refineries. Lower prices in Cushing translate into lower prices at the refineries which, in turn, translate into lower prices at the pump.
Oil is the life's-blood of any modern economy and the industrialized world has developed some extraordinarily efficient means of moving oil from where it is produced to where it is consumed. While oil prices do differ from location to location, those differences are the direct consequence of inefficiencies in the global oil distribution network. Oil is expensive at the periphery of the network and inexpensive at its core and, at present, the "shape" of the US oil distribution network serves to trap huge amounts of oil in the nation's heartland. As John Boehner's office put it by way of Reuters:
"Despite numerous attempts by Republicans to compel the president to approve the Keystone permit, Americans are still left with a 1,179-mile (1,897-km) gap between the oil resources and this southern portion of the pipeline," said Brendan Buck, a spokesman for Republican Speaker of the House of Representatives John Boehner, referring to the full Keystone XL project.
Energy and gas prices make fine political cudgels but the simple truth is that oil, like almost every other commodity on the planet, is produced, refined, and consumed in a global market. Politicians can certainly block or compel changes to the way oil is transported as Buck suggests above, but those changes have far-reaching consequences and must be considered within the context of a global market. While the Keystone XL pipeline would make it easier to move oil from Canada to the Gulf Coast, that would do little to benefit middle Americans.
Indeed, connecting Cushing to the Gulf Coast would simply serve to relive the area's oil glut; all of that stored oil would flow to Gulf refineries where it could be processed into a wide range of petrolium products to be sold overseas. No longer isolated from buyers in India and China by thousands of miles of American farmland and the cost of trucking crude over it, mid-western oil prices would rise to meet the global market.
That is not to say that there are no advantages to the Keystone XL project. Infrastructure projects always represent some temporary jobs and a pipeline terminus on the Gulf Coast would require its own support staff. Unfortunately, those jobs would come at the expense of tank farmers and refinery workers throughout the Midwest to say nothing of the industries and businesses that currently benefit from the low price of oil in Cushing, Oklahoma.
To hear Romney, Santorum, and the Congressional Republicans tell it, the construction of the Keystone XL pipeline would solve all of America's energy woes but the reality is that Keystone XL was designed to move oil out of America, not into it. Keystone XL will certainly bring oil prices down, just not here.
That's worth thinking about next time you have to fill up.