Push for Expedited Pipeline Construction May Have Little Effect on Gas Prices
(MintPress)-Under pressure to lower prices at the pump, President Obama is expected to announce in Cushing, Oklahoma on Thursday his plans to expedite a permit to TransCanada Corporation for the southern portion of the Keystone XL pipeline that will stretch from Oklahoma to Texas.
Obama’s stop in Oklahoma is part of a four-state tour to highlight the President’s “all of the above” energy strategy amidst harsh criticism that the current administration is not doing enough to curb record-high gas prices.
However, a recent AP study found that despite a 15% increase in domestic oil production when seasonally adjusted over the past three years, prices at the pump jumped from $2.07 to $3.58 per gallon – suggesting that construction of the southern portion of the pipeline will have little effect on increasing prices at the pump.
The Obama administration faced harsh criticism in January when TransCanada was denied a permit to build the Keystone XL pipeline stretching across the international border from Canada to the Gulf of Mexico because the administration needed more time to examine alternate routes and the environmental impact of the 1,700 mile project.
Despite opposition to the construction of the northern portion of the pipeline, Press Secretary Jay Carney said in February that the Obama administration welcomes construction of the southern portion of the pipeline from Oklahoma to the Gulf of Mexico as a way to relieve the bottleneck of oil in Cushing.
A Push for Increased Domestic Drilling
Obama’s plan to expedite the southern permit for TransCanada is not likely to silence the heavy uproar from voters and Republican presidential candidates about the Obama administration’s failure to lower gas prices, which are at the highest level ever for the month of March.
“The Obama administration’s ideological refusal to expand American energy production continues to block the development of resources which could lower gasoline prices dramatically,” GOP candidate Newt Gingrich wrote in an article for Human Events.
“As we saw most recently with the administration’s rejection of the Keystone XL pipeline, the president is more interested in playing favorites with environmental extremists rather than embracing the ‘all-of-the-above’ strategy that could achieve energy independence and help all Americans now.”
If elected, GOP candidates Newt Gingrich, Rick Santorum, and Mitt Romney all vow to approve the Keystone XL pipeline permit along the Canada-U.S. border. Gingrich has said that as president, he would lower gas prices to as low as $2.50 per gallon.
Rep. Fred Upton (R-MI), chairman of the Energy and Commerce Committee said in February, “The [Keystone XL] pipeline will bring secure energy to America, support the creation of thousands of jobs, and help bring down prices at the pump.”
GOP front-runner Mitt Romney is not only advocating for the construction of the Keystone XL pipeline, but is also pushing the President to open up drilling in ANWR (the Arctic National Wildlife Refuge), North Dakota, and elsewhere.
Sen. Lisa Murkowski, R-Alaska, said on the Senate floor last week, “With oil prices above $100 a barrel and gasoline soaring toward $4 a gallon, greater production is not a political opportunity, it is a legislative imperative.”
Will Keystone XL lower gas prices?
As convincing as the fear mongering of politicians about the threat of dependence on foreign oil and the need for domestic drilling may be, there is no evidence to suggest that construction of the Keystone XL pipeline will result in lower prices at the pump.
In fact, the Associated Press conducted a statistical analysis of 36 years of monthly, inflation-adjusted gasoline prices and U.S. domestic oil production that showed no statistical correlation between how much oil comes out of U.S. wells and the price at the pump.
Looking at oil prices starting in March 1986, the AP found that inflation-adjusted gas prices fell below the $2-a-gallon mark and stayed there for most of the rest of the 1980s and 1990s. During that time between 1986 and 1999, however, production dropped by nearly one-third. “If the drill-now theory were correct, prices should have soared,” reports AP. “Instead they went down by nearly a dollar.”
Gas prices are actually set on a global level by factors difficult to control even by the President of the United States – a fact even TransCanada acknowledges.
A company fact sheet on the Keystone XL pipeline reports that “TransCanada does not set oil or gas prices. In fact, the price of international oil prices has no impact on the operation of our pipeline and we do not profit from changing market changes. Prices are set on a global level.”
TransCanada also reported in a press release that, “The Keystone XL project offers Americans a choice of receiving Canadian and U.S. oil through this pipeline system or continuing to import crude oil from unstable places such as the Middle East and Venezuela that do not share American values.
However, Philip K. Verleger, a noted oil economist, has said that products produced from the crude in the pipeline will actually be exported into the world market if prices fall below world levels. “This means that consumers outside the Midwest will get no benefit from the line while consumers in the upper Midwest may pay more,” said Verleger in an email.
Even if the Keystone XL pipeline were suddenly approved, total construction would not be completed until at least 2014 – long after the storm of election hype around gas prices is over – having no effect on the expected record high gas prices this summer.
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