Keystone XL Pipeline: Know Why the U.S. Will Approve It? 35 Billion Dollar Bills


The Keystone XL pipeline argument has been framed as an environmental one, with various lobbyists arguing about carbon, global warming, oil spills, and toxic waste. What isn't being discussed is that without the Keystone, U.S. refineries are in jeopardy of losing the approximately $35 billion dollar wealth transfer they will receive by processing Canadian bitumen.

Canadian Prime Minister Stephen Harper will be trekking down to New York along with his $16.5 million advertisement campaign aimed at both Canadian and American audiences with the message:

"Canadian pipelines are the environmentally responsible choice to meet America's oil energy needs," according to the webpage.

The back and forth about the Keystone XL pipeline has been eventful, with landowners and environmentalists on one side and politicians/lobbyists/oil and gas industry, on the other. The public seems to be allied with the energy sector, with 74% of Americans and 68% of Canadians surveyed supporting the approval of the TransCanada Corp project.

The administration has so far kept their decision close to the vest, but in the end, you have to follow the money. Currently, the majority of the bitumen extracted from the Alberta oil sands is being exported in its raw state to refineries in the Midwest for processing. Canadian companies are selling the bitumen at a huge discount (works out to on average $25 a barrel) and losing out on what's called the crack spread, or the difference between what the company pays for the input and what it receives for the finished product (gasoline or diesel). That means that essentially the wealth transfer the U.S. refineries is receiving on the oil from Canada works out to $35 billion, and the U.S. can't afford to lose that subsidy.

If you talk to those who work in or around oil and gas in Canada, they would probably tell you they'd love for Canada to be refining bitumen in country and reaping the profits. Currently it is easier to sell the bitumen at a discount and ship it to U.S. refineries, but if Keystone is rejected, it might force the energy companies into investing in more refineries in Canada, which would cripple the U.S. refinery industry.

Keystone will be approved; the U.S. can't afford not to. But if by some miracle the U.S. administration doesn't ... they would be doing Canada a favour.