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Keystone XL – Do We Need It?

Written by Dennis Sun

Checking on oil prices this morning, I see they are around $46.40 a barrel – up a buck from the last time I checked. These days oil is like a lot of other commodities – grain, precious metals, coffee and others – up, down, all around, but mainly down.

Most of us who are involved in agriculture don’t have a problem with lower oil prices, but this time around, a lot of farmers and ranchers have production on their mineral rights, so some really don’t mind high oil prices. For others though, in the southern Campbell County and northern Converse County area, they are looking for a break from all the drilling activity. For the last two or three years, ranches have really been impacted. Livestock have taken a backseat to road sites, well pads, compressor stations and dealing with the dust and traffic from the energy-related activities. 

If you think about it, the oil and natural gas folks are just like ranchers and farmers. Their product is a commodity, and just like meat or different types of livestock, supply and demand drives their prices. We would all like prices to remain stable at a level where we are making money, but that is not the capitalistic way, I guess. Some would say consistent, stable profits would take all the fun out of the market.

We are reading all the reports now that say, with the glut of world oil, prices will be kept at lower levels, and U.S. oil storage is getting full. But the reason for the buildup of oil storage is not all American oil. The largest storage hub for oil moving to the huge Gulf Coast refineries is in Cushing, Okla. Despite some new pipelines to the storage hub from new fields in the States, new pipelines from Canada with heavy Canadian crude are one of the main reasons the hub is getting full. 

There are pipelines that take oil from Canada to a Pontiac, Mich. hub, and there is a new large pipeline that originates in Pontiac and carries around 550,000 barrels of oil daily across Illinois, Missouri, Kansas and on down to Cushing, Okla. 

When this oil gets to Cushing, customers paying to send their oil on the line then have the option of storing it or sending it on down to the Gulf in a newly-completed Seaway Twin pipeline. If the prices were higher for the heavy Canadian crude, those shippers might want to send it on down to the Gulf. But because of the situation in the oil markets now, where the price of oil for delivery six months from now is higher than the current spot price, they would rather store it and wait for higher prices.

That is the difference between oil and gas and livestock. We really can’t store livestock for long, as they eat while we sleep and get heavier and heavier.

Then comes the big question. Do we really need the Keystone XL pipeline? Canadian oil is already getting to the United States. Is it helping or hurting us? Keystone would keep oil cheaper, but does that really help the state of Wyoming building roads and schools? Where is the happy medium here?