Cushing extension could hike fuel prices in Midwest

2012-03-22T18:00:00Z 2012-04-01T18:10:36Z Cushing extension could hike fuel prices in MidwestBy ART HOVEY / Lincoln Journal Star
March 22, 2012 6:00 pm  • 

As the price of regular unleaded gasoline edged as high as $3.99 per gallon at several Lincoln service stations Thursday, President Barack Obama was in Oklahoma, promoting completion of the Keystone XL petroleum pipeline from Cushing to Gulf Coast refineries.

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.

The 485-mile Cushing extension would connect Canadian oil sands with the largest refinery complex in the United States. Crude oil would flow through TransCanada's first Keystone pipeline, which passes through the Lincoln area just west of Seward.

Eventually, that 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. And it could take some pressure off the president as he seeks re-election in November.

But it also could add to the price of retail gasoline in the Midwest.

A year ago, Colorado-based energy industry analyst Philip Verleger warned of the possibility of a Keystone XL-related increase of perhaps 7 cents per gallon in an area that includes Nebraska.

On Thursday, Patrick DeHaan, senior petroleum analyst for the price-watching, agreed market forces could move fuel prices in that direction.

"I share that concern," he said in response to an email inquiry. "Any diversion of Canadian oil away from the Midwest and Rockies may hurt."

One reason is that the Cushing project would create an export outlet for Canadian oil.

Another reason, cited by Verleger earlier, is that oil moving on to the Gulf is oil moving away from refineries in Illinois, Kansas and other Midwestern states.

As TransCanada completed the first phase of its first pipeline through Nebraska in 2010, the pipe took a sharp eastward turn along the Nebraska-Kansas border and headed for Illinois.

The company finished its southern, Steele City-Cushing leg after that and began routing oil to Cushing early last year.

But Verleger and others have said that the gap between Cushing and the Gulf kept more oil in the Midwest and resulted in cheaper transportation costs between Midwest refineries and consumers.

In countering Verleger's view last year, TransCanada's Louis Fenyvesi said Nebraska drivers had nothing to worry about.

His reasoning was that Canadian crude is cheaper than oil being imported into the United States from the Middle East, and the entire country would benefit.

Others aren't as quick to connect those dots.

Jeff Lenard, spokesman for the National Association of Convenience Stores and its hundreds of Nebraska members, is among those tracking Obama's Cushing visit without 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 said, "there's a huge hue and cry that somebody's got to do something. And sometimes, that something is not necessarily the best thing."

While pronouncing himself not an expert on the complexities of oil markets, he took note of the unusually large disparity in regional gas prices 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."

Price watchers were seeing more than $4.30 per gallon in California this week, for example, compared to $3.64 in Colorado.

If those numbers are narrowed by extending the Keystone XL southward from Cushing, it could be a combination of lower prices in some places and higher ones elsewhere.

That could lower Obama's popularity in the Midwest later on. But he's already getting a scolding from those who want action on the north end of Keystone XL and from environmental groups, who regard the extraction of Canadian crude from oil sands as a threat to natural resources.

The president denied a permit on the portion of the Keystone XL that crosses the Canadian-U.S. border in January because of a pending Nebraska review of a route around the Sandhills.

Jane Kleeb of Bold Nebraska was among those criticizing the president's Cushing trip Thursday.

"Many of us voted for President Obama because he shared a vision for a clean energy economy, one that lives up to what Americans can do," she said in a statement. "TransCanada's export pipeline does not fit into this vision."

Reach Art Hovey at 402-473-7223 or at

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