Last year, oil companies such as TransCanada, Valero and others pushed for the completion of the Keystone XL oil pipeline. The Keystone XL pipeline would carry heavy crude oil from the Alberta tar sands in Canada, through several Midwestern U.S. states, and down into the refineries in the Gulf of Mexico. A decision on the approval of the permit is expected by July. One of the main reasons for the pressure to approve the pipeline is the oil lobby’s marketing campaign that tries to convince Americans that increasing domestic oil production will decrease gas prices here in the U.S.
But the fact of the matter is that increasing domestic oil production does not decrease oil prices. Those in the oil lobby that argue for increased oil production in the U.S. conveniently neglect to mention that oil is a globally traded commodity that is highly manipulated by the Organization of Petroleum Exporting Countries (OPEC). Oil markets do not act in the same way that markets for other commodities do, such as corn and steel. The OPEC cartel controls the supply of oil in the world at any one time by increasing or decreasing its production.
The U.S. is left with two scenarios: 1) America starts to buy less oil from foreign countries, which results in OPEC cutting production to decrease supply which increases prices or 2) America increases its own domestic production of oil to the point at which it no longer needs to import oil. This would be met with subsequent cuts in production by OPEC again which would keep world oil prices high. In both scenarios, Americans will be left paying the higher OPEC price because American oil companies would export at the higher OPEC price rather than selling the oil domestically at the lower U.S. price.
This brings us back to exactly why the Keystone XL pipeline will not help the U.S. economy. If the pipeline is built, American refineries will be pumping out more refined oil than ever before. But this will not increase the supply of oil because of the anticipated cuts in production by OPEC, and thus will not decrease the price of gas in the U.S. If anything, the pipeline would increase the price of gas in the United States because the Keystone pipeline is first and foremost an export pipeline. It would divert oil from the Midwestern states and send it to the Gulf of Mexico where it will be sent overseas. Since Midwestern refineries would have less oil to work with, gas prices are expected to increase in the region if the pipeline is built.
The oil lobby also argues that the Keystone pipeline will bring 20,000 permanent jobs and 118,000 “spinoff” jobs to the United States. But this study was entirely funded by an amalgamation of oil companies and thus cannot be fully without bias. In an audit of the same study by the State Department, it was found that the Keystone pipeline would only create 5,000 temporary jobs for two years and 20 permanent jobs. Furthermore, the Keystone pipeline would destroy countless more jobs because of spills and leaks from the pipeline. The portion of the pipeline that has already been built has experienced 14 leaks to date. Each of these leaks destroys farmlands and businesses which are then required to shut down which in turn eliminates jobs.
In addition, the Keystone pipeline will increase the greenhouse gas effect in the United States. Burning the recoverable tar sands in Alberta will increase the earth’s temperature by a minimum 2 degrees Celsius. Current greenhouse gas effects have already contributed to extreme weather events such as Superstorm Sandy which inflicted nearly $80 billion in damages and cut 86,000 jobs from the United States.
America needs to move away from an economy that is so dependent on oil. Alternative energy is the future and the U.S. government needs to invest more in its development of different types of alternative energy, which will create more permanent jobs. Oil is the past, and blocking the Keystone pipeline is the first step toward preventing more damage to the American economy.
Kaushik Rao is a sophomore Political Science and Economics double major from Yorba Linda, Calif. He is the economics columnist for TheNews-Letter.
