Keystone: the pipeline to higher gas prices

This is nonsense on many fronts, most of all because the price is oil is fundamentally set on global markets. As the Congressional Research Service pointed out in late January, when there’s trouble in places like the Straits of Hormuz, the price of oil goes up for everyone and Keystone will make no difference, since the oil market is “globally integrated’; it’s not like Exxon offers a home-country discount to American motorists.

But in the case of the Keystone pipeline, it turns out there’s a special twist. At the moment, there’s an oversupply of tarsands crude in the Midwest, which has depressed gas prices there. If the pipeline gets built so that crude can easily be sent overseas, that excess will immediately disappear and gas prices for 15 states across the middle of the country will suddenly rise. Says who? Says the companies trying to build the thing. Transcanada Pipeline’s rationale for investors, and their testimony to Canadian officials, included precisely this point: removing the “oversupply’ and the resulting “price discount” would raise their returns by $2 to $4 billion a year.

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According to the National Wildlife Federation, that would translate to about $3 for an average 15-gallon fill-up - as independent energy economist Philip Verleger put it, with Keystone the industry “will be able to use its market power to raise the heavy crude price to Midwest refiners above the level that would prevail in a competitive market.” Certainly that’s been the case in the past: Stephen Kretzmann of Oil Change International recently calculated that "over the last two decades the U.S. has almost tripled the amount of Canadian oil we've imported into the US, and during that time average gasoline price has more than tripled.” The Midwest states most at risk of higher prices if Keystone is built include some of the hardest hit economically in the country: Michigan, Ohio, Illinois, Indiana, Wisconsin.

In other words, the Keystone Pipeline is among other things an attempt to manipulate prices - which may not come as too great a shock to an American public used to watching the fossil fuel industry manipulate prices.

If we actually wanted to insulate our economy from the effects of oil price increases, we’d need to do a couple of things. One is slow speculation by hedge funds and their ilk in oil markets. Business Week reported this week that $11 billion in betting money has entered oil markets “on the long side” in recent weeks - i.e., people trying to cash in by squeezing the price higher. The last time gas went above $4 a gallon, in the summer of 2008, oil executives later admitted that about a quarter of the price hike was the direct result of this speculating frenzy.

But the longer-term fix is the obvious one: get our economy off fossil fuel. Every hybrid car we build, every solar panel we erect, every windmill that arises - each takes us closer to the day when we can tell Iran, Exxon, Venezuela, Shell, Transcanada and the rest exactly what they can do with their oil. The less we use oil, the less they can use us.

That reduction, of course, is the real nightmare scenario for those companies and countries. It’s why, in Washington and around the world, they’ve blocked every attempt to really deal with climate change and the other troubles fossil fuel produces. They figure - so far rightly - that they can buy enough politicians to keep their record profits flowing. But 800,000 Americans sent the Senate messages opposing Keystone in a single day last week; it’s a sign that people are starting to wake up, which is what you’d expect after the year with the most weather disasters in our history.

Maybe manipulated rises in the price of gas will have the same effect. It’s time to get angry, and for once to get angry at the right people: the fossil fuel industry has already damaged enough lives.

Bill McKibben the founder of the international climate campaign 350.org and has led protests against the Keystone XL pipeline