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Cushing and How it Affects Gas Prices

Filed by KOSU News in Feature, Local News.
March 22, 2012

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President Obama visits Cushing today, better known as the pipeline crossroads of the world. Keystone XL would bring more Canadian oil to the small town, where there’s so many oil tanks they call them tank farms. You’ve probably heard the President delayed a decision on the major portion crossing the US-Canada border. But a second part will be built, helping get oil from Cushing to market…

Construction in Cushing is booming, thanks to the need for space for all the oil. That’s because so many pipelines bring oil there, and so few carry it out…

“To us in the oil and gas business, Cushing’s the mecca. Because that’s where everyone has to get their oil, and that’s become a problem.”

Mike Cantrell is head of the Domestic Energy Producer’s Alliance, a trade group. He says because Cushing is stuffed full, it’s pushing prices down for his members here in the state. Those monstrous tanks continue to go up in Cushing, sprouting out of the ground like oversized mushrooms. They have to because the oil just keeps on coming.

“That’s the crossroads where the pipelines come into but the issue is you have all these pipelines coming in to Cushing and you only have a couple going out. So there’s no takeaway capacity and it all just stacks up at Cushing.”

Without pipelines there aren’t a whole lot of options for moving the gooey stuff. Trucks or rail, but that’s more expensive. Plus, a barrel of Cushing oil has been about 20 dollars cheaper for the last year now, so many just want to wait out the market and see if they can get more money for their fuel.

“Storing oil is an economic decision right now. They can play the futures curve and store oil and sell it into the future.”

When I talked with Brad Carson he was Executive Director at the National Energy Policy Institute. He’s now General Counsel for the Army. Even months ago, he saw a shift.

“To the extent that this differential in price between the world markets and Cushing persists, I think you’ll see an aggressive move for these types of pipelines.”

Sure enough, in the last couple months, oil delivery company Enbridge went in 50% on a pipeline out of Cushing and will soon reverse it. And now, Keystone XL will get built, but only the second part, from Cushing to Texas. Even with more pipelines though, things aren’t going to get better at the pump, says Dr. Kent Moors, at the Institute for Energy and the Environment

“Whether we have a continuing glut at Cushing or we don’t, that price is going to continue to go up because of factors in which we have very little domestic control.”

Dr. Moors says you just have to look abroad. Whether it’s the growing demand for oil around the world, or tensions in the Mideast surrounding Iran, gas prices are likely only going higher. Others dispute that. I reached Rayola Dougher with the American Petroleum Institute, an oil industry group. She says when there’s a cheaper way to move oil – like a pipeline – prices could fall.

“It should help that backup that’s been happening. What it means is the crude has been discounted but the transportation mode when you’re moving especially North Dakota crude and some of this crude by rail and by truck, it’s a very expensive way to move crude.”

Dougher says if the President would only stand with the industry, that would change the situation.

“We have not seen real support for domestic oil and gas development in the United States. We’ve seen a lot of support for renewables, for solar, for wind, for everything, except for the fuels that provide more than two thirds of the energy that we use.”

While the northern part of the Keystone XL pipeline hasn’t received the go ahead from federal authorities, there’s other news. CNN and USA Today both report President Obama will announce in today’s speech his plan to quickly grant permits for the second part of the Keystone XL, from Cushing to Texas, to help clear the backlog.

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