I am getting increasingly annoyed with the President saying that the Keystone pipeline will allow Canada to send their oil through our land where it will be sold elsewhere. Here is an example from a yahoo news story, Keystone Pipeline vote isn’t about energy.
In a press conference last week in Asia, Obama remarked that the pipeline wouldn’t add anything to the U.S. energy economy and would allow Canada to, “pump their oil, send it through our land, down to the Gulf, where it will be sold everywhere else.”
As a guy who lived in Houston for 18 years the idea that the oil will be sold elsewhere is very unlikely. What is likely is:
- Refiners along the Gulf coast will see lower prices for all of their feedstocks. Most of the refiners can handle a variety of feedstocks and will switch to the feedstock that makes them the most money.
- Refiners will convert every barrel coming out of the pipeline into high valued products like gasoline, diesel, jet fuel, and the chemicals used to make plastics and fibers. The Gulf coast already has an intricate web of product pipelines for the building blocks of plastics.
- The United States oil and chemical industries are very, very good at capturing as much value as possible out each barrel of oil. That is what they have been doing for over 100 years. It is unlikely that Canada will get a better price exporting crude.
- Almost all of these high valued products will be consumed within the United States. The State of Texas has this great summary on crude and it echoes what Keystone Pipeline folks say on the Myths & Facts page.
- Lower feedstock prices will translate into higher profits and potentially into a combination of higher profits and sales since the Gulf coast will now have a competitive advantage over other countries. It is the ripple effect from lower feedstock prices that may be the most significant contributor to economic growth. If you are the low cost producer then selling value added products overseas becomes feasible again. If we continue to focus on infrastructure policies that improve productivity then we should see the result in real growth in the business sector and eventually in middle class disposable incomes.