Publications: Papers

The Keystone XL Pipeline: OPEC’s Trojan Horse? (October 2011)


The proposed Keystone pipeline expansion, which would move oil from the Canadian tar sands to the US Gulf, has been defended on the basis of energy security. Proponents assert the increased oil supply from Canada will displace less secure imports from other foreign sources. This paper examines the claim and finds it incorrect. Careful economic analysis reveals the new pipeline will allow refiners and foreign suppliers to drive a wedge between the prices of oil produced in the United States and oil produced in areas such as Africa or the Middle East. This wedge could exceed $20 per barrel. The lower price will prompt firms exploring for oil and gas to curtail activities in the United States and Canada, forcing North American output lower than might otherwise obtain if Canada chose a more logical outlet for its crude: a port in British Columbia. The fact that Keystone will likely decrease US energy security makes it unclear why the United States government should endorse the project.


(Note: This paper is available on request.)