Cushing Pipeline Extension Could Raise Gas Prices

Analysts caution that Canadian oil moving to the Gulf is oil that would be moving way from refineries in Illinois, Kansas and other Midwestern states.

March 26, 2012

LINCOLN, Neb. - Last week President Obama was at the TransCanada Pipe Yard in Cushing, Okla., to promote the completion of the Keystone XL petroleum pipeline from Cushing to Gulf Coast refineries. The 485-mile Cushing extension would connect Canadian oil sands with the largest refinery complex in the United States, moving crude oil through TransCanada's first Keystone pipeline, which passes through the Lincoln area.

"That's right. The same president who denied TransCanada's application to build the northern leg of the same pipeline through Nebraska in January is endorsing the southern leg in March," writes the Lincoln Journal Star.

Eventually, the extension "could shave a few cents off fuel prices in parts of the country where regular unleaded already has surged past $4 a gallon, including California and New York, writes the newspaper. But in Midwest areas like Lincoln, "it also could add to the price of retail gasoline."

Energy industry analyst Philip Verleger warned a year ago of the possibility "of a Keystone XL-related increase of perhaps 7 cents per gallon in an area that includes Nebraska," writes the newspaper, because oil moving to the Gulf is oil that would moving way from the refineries in Illinois, Kansas and other Midwestern states.

Patrick DeHaan, senior petroleum analyst for GasBuddy.com, agreed that market forces could move fuel prices higher instead of lower. "Any diversion of Canadian oil away from the Midwest and Rockies may hurt," he said.

TransCanada's Louis Fenyvesi countered those views, noting that Nebraska drivers had nothing to worry about. He told the newspaper that Canadian crude is cheaper than oil imported to the U.S. from the Middle East, and that the entire country would benefit.

NACS spokesman Jeff Lenard cautioned against jumping to conclusions about the effect of any construction follow-through.

"The problem when you get oil prices like this and gas prices like this," Lenard told the newspaper, adding, "there's a huge hue and cry that somebody's got to do something. And sometimes, that something is not necessarily the best thing."

Lenard also commented on the unusually large gas price disparity this spring. "I don't know if there's ever been quite this spread between prices in the Midwest and the Rockies and prices on the coasts."

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