How the Keystone Pipeline and the Gulf Coast Are Mutually Beneficial
August 27, 2013
The Keystone XL pipeline is a very high profile project in the US Oil and Gas Industry. It is frequently in the headlines and there is no shortage of coverage on the topic. Many articles discuss the fact that the Keystone XL would transport Canadian crude oil to the Gulf Coast region of the United States. Of these, the discussion, why the Gulf Coast is an important destination for the Keystone crude oil, is sometimes overlooked. This article briefly discusses several key points as they relate to the Keystone and the Gulf Coast, and how they mutually beneficial each other.
What Type of Crude Will The Keystone XL Be Transporting?
The first part of understanding why the Gulf Coast is particularly important for the Keystone XL is to understand the composition of the product the Keystone would transport. The type of crude oil being shipped in from Canada is known as Canadian Heavy Crude. Specifically it is referred to as oil sands bitumen. As the name implies this is a type of oil that consists of a mixture of petroleum and water along with sand or clay. This makes the mixture extremely dense and viscous.
These oil sands are often referred to as "bituminous sands" or simply "bitumen". Colloquially they are also often referred to as tar because they have a similar appearance, color, and consistency. Canadian authorities describe the bitumen oil sands as "Petroleum that exists in the semi-solid or solid phase in natural deposits. Bitumen is a thick, sticky form of hydrocarbon, so heavy and viscous (thick) that it will not flow unless heated or diluted with lighter hydrocarbons. At room temperature, it is much like cold molasses."
The The World Energy Council (WEC) classifies natural bitumen as "oil having a viscosity greater than 10,000 centipoise under reservoir conditions and an API gravity of less than 10° API."
In simplest terms this means that bitumen oil sand is very heavy and impure. For this reason they require intensive refining and processing to become economically viable. This is where the Gulf Coast region comes into play.
Why Is the Gulf Coast Important For the Keystone?
The Gulf Coast region of the US is such an important area for the Keystone because the Gulf Coast is essentially the oil capital of the nation. The US processes more oil than any other nation, and within the US the Gulf Coast, processes more oil at a greater refining capacity than any other region.
The Gulf Coast is also very well suited to the type of refining and processing that is needed for Canadian oil sands. The Gulf Coast boasts many state-of-the-art refineries and technologies, enabling it to process crude that other refineries simply cannot handle. Currently the already-existing portions of the Keystone are piping Canadian crude to the Midwest. The Midwest can handle about 500,000 barrels per day. By comparison the Gulf Coast can refine four- to five- times that amount (2.38 million barrels per day)!
The single, realistic option for the US to expand its consumption of Canadian heavy oil is to pipe it to the Gulf Coast. In fact, the Keystone XL would not pipe Canadian crude oil to the Gulf Coast, it would pipe American crude oil. This American crude, currently sits in reserves and awaits Gulf Coast refining, where it could become processed more effectively.
How Will the Gulf Coast Benefit From the Keystone?
So far we’ve touched on how the Keystone project will benefit from the Gulf Coast. However, there are also many potential benefits for the Gulf Coast. Initially, the Keystone XL Pipeline project would create more jobs in the area needed to construct the pipeline. Additionally, more employees in various companies related to the pipeline would be hired to handle the increased volume produced by Keystone XL.
The Gulf Coast would also benefit from the revenue costs associated with the processing and selling the Keystone product. The Keystone oil sands would also bring about lower crude oil prices. Some figures estimate that the US could save as much as $9.1 billion a year on its crude oil bill. Many if not most of these refineries are located in the Gulf Coast and thus it would save the Gulf Coast a very substantial amount of money which could then reinvest back into the economy or go toward important other projects. The Keystone project would generate important and considerable tax revenue for the Gulf Coast.
As we have discussed in previous articles, the Gulf Coast and specifically Louisiana are in the middle of a major oil, gas, and refining boom. The Keystone XL pipeline would stimulate the Gulf Coast to further capitalize and sustain this boom to take it the region to new and greater prosperity. Ultimately the Keystone and the Gulf Coast are extremely beneficial to each other and make a very sensible partnership.