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March 05, 2012

We Tried 'Drill, Baby, Drill' and It Failed

Oil rigLately, there have been many misleading claims about gas prices that have sparked renewed debate on the Keystone XL tar sands pipeline. However, this dangerous and dirty pipeline won’t rescue us from record high gas prices, and if you live in the Midwest you’ll see quite the opposite effect.

Based on political dialogue, you would think that the Keystone XL pipeline would solve all the world’s problems. Republicans in Congress added it to the December payroll tax cut legislation, and most recently, to the Transportation reauthorization bill which expires at the end of March.

In an effort to score political points with Big Oil, instead of searching for concrete solutions, politicians have tried to sugarcoat Keystone XL with promises that it is a cure-all for high gas prices.  More oil means cheaper gas at the pump, right?

Wrong.

We tried drill baby drill, and it failed. Consider this, U.S. domestic production is at the highest it’s been in years but gas prices are 12% higher than last year. The U.S. is producing nearly 20 million barrels per day (MMbd);  there are four times the number of operating oil and gas rigs now than there were three years ago; the U.S. EIA expects production to increase to 6.4 MMbd by 2025.  Despite this, gas prices are raising faster and higher than we’ve seen in previous years.

Meanwhile, domestic demand for gas is down 5.4% from last year, or nearly half a million MMbd. This week marks the 24th straight week that year-on-year demand fell.

We expect demand to continue to decline as the President’s action on vehicle efficiency comes into effect. These standards will cut oil use by 2.2 million barrels per day in 2025 and TRULY save Americans billions of dollars at the pump.

The truth of the matter is that the price of gas follows the price of oil - and this is set on the global market.  It is generally unaffected by domestic policies or projects, such as Keystone XL.  

So what does affect the price of oil? It’s complicated, but most experts agree that the price of oil is largely shaped by speculation from investors, increasing demand from developing countries, OPEC policy, and unrest in the Middle East.  Take note: none of these take place in America (outside of Wall Street that is).

The Keystone XL pipeline is about prices at the pump, but not in the way that politicians would have you think.  Keystone XL is actually an oil export pipeline that will increase gas prices in 16 states. TransCanada (TC), the pipeline’s owner, bragged to its shareholders that one of the main goals of the project is to raise the price of oil in the Midwest by bringing landlocked Alberta Tar sands crude to the world market via an international shipping port in Texas. TransCanada estimates that this will allow it to charge an additional $2 - $4 billion per year for its oil product to either U.S. or foreign buyers.

If we want to be less vulnerable to price spikes, we have to use less oil, and that’s why permitting the Keystone XL tar sands pipeline will do nothing to bring down the price of gas. Neither will cheap political points and false debates. 

-- Radha Adhar and Lena Moffitt, Washington Representatives for the Sierra Club

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