By Andrew Leach - Monday, November 21, 2011 - 47 Comments
Washington’s decision to temporarily shelve the Keystone XL project has Canadian companies rushing to redraw the pipeline map. Enbridge announced plans to reverse the direction in which crude oil flows in the Seaway pipeline connecting Oklahoma to Texas in order to send more oil from Midwestern refineries to those on the U.S. Gulf Coast. Keystone godfather TransCanada, on the other hand, wants to start building the southern leg of the pipeline, also linking Oklahoma to Texas. Both projects aim to reduce the pressure on a bottleneck of crude in the U.S. Midwest that’s been building up for a year. Why are Canada’s majors so eager to build pipelines to the Gulf? Andrew Leach, a professor of natural resources, energy, and environment at the University of Alberta’s Alberta School of Business, explains.
Why is there a buildup of crude oil, including Canadian crude, at refineries in the U.S. Midwest?
It’s a simple case of supply and demand in a local market. We’re often told the market for oil is global, but in truth it’s more of an integrated web of regional markets and the U.S. Midwest is one of those regions (in the graphs, you’ll see it referred to as PADD 2). This regional market has pipelines running both in and out of it, and oil is used by refineries within the region to produce gasoline, diesel fuel and other products. There are essentially two ways in which crude oil gets out of the Midwest–either it’s refined or it’s transported to another region by pipeline, rail, barge, or truck. On the demand side, use of crude oil by Midwest refineries has been decreasing since the year 2000, as shown in the figure below: Continue…