When Keystone XL is built the biggest losers will not be the Greens, it will be Big Oil
Keystone XL should bring Canadian crude, which at the moment sells at a $30 discount, in line with global prices. At the same time a huge slice of the record profits announced this week by Chevron, ConocoPhillips and Exxon Mobil will we wiped out.
Dow Jones reports the price discrepancy between the US crude contract West Texas Intermediate, which is priced at the Cushing hub in Oklahoma where almost of Canada's oil ends up, and international prices has brought record profit margins to US oil companies.
Refiners in Oklahoma, West Texas and North Dakota are able to buy oil at prices tied to WTI which on Friday traded at $93/barrel. They then sell the processed fuel at prices pegged to the more expensive Brent which is priced in Europe and sells for $110/barrel.
When completed Keystone XL will have the capacity to carry 1.3 million barrels per day to the US. At the moment only 100,000 barrels of Canadian crude – Western Canada Select in turn sell for $12 less than WTI – goes to Gulf coast refineries.
The price of gasoline and diesel in the market served from Cushing oil already reflects the international price, so consumers won't be hurt James Williams, an energy economist at WTRG Economics told MarketWatch. “The only losers in this would be the refiners in the area which have benefited from the below-market price of WTI.”
Reuters reported on Wednesday ConocoPhillips, (NYSE:COP) the third-largest US oil company, reported a much higher-than-expected quarterly profit on strength in its refining business while the world's most valuable company, Exxon Mobil's (NYSE:XOM) recent report showed profits grew $3 billion boosted by stronger refining margins. On Friday, number two Chevron (NYSE:CHV) announced its profits more than doubled.
Even if both TransCanada's (NYSE:TRP) Keystone XL and Enbridge’s (TSE:ENB) Northern Gateway pipelines are built bitumen is expensive to extract, upgrade and refine and cannot compete with the many new shale oil plays – particularly in the Bakken oil basin – which have pushed US production to its highest level in a decade and could see it become the planet's number one producer of crude.