U.S. Weighing Antitrust Investigation of Oil Sands Shippers

The FTC says it will take seriously a senator's request to investigate whether Canadian firms are colluding to boost prices of tar sands to U.S. refineries

Senator Ron Wyden of Oregon
Senator Ron Wyden of Oregon/Credit: OregonDOT

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WASHINGTON—Conservationists and other advocates have maintained all along that constructing a much-disputed Canada-to-Texas oil sands pipeline will harm Midwesterners by forcing drivers to fork over more dollars at the gasoline pump.

And Sen. Ron Wyden has elevated that argument to a higher plane by requesting a Federal Trade Commission probe of potential anti-competitive practices connected to the $7 billion Keystone XL pipeline.

The Oregon Democrat has asked FTC Chairman Jon Leibowitz to investigate whether Canadian oil companies are violating antitrust rules with an agreement to ship heavy crude from the tar sands mines of the province of Alberta to the refineries along the Gulf Coast.

“While the full nature of the arrangements agreed upon by the Canadian shippers is unclear, there is clear indication that there is a coordinated ‘strategy’ among Canadian suppliers to gain higher prices,” Wyden writes in the letter dated April 6. “According to TransCanada, the proposed Keystone XL pipeline can be used by Canadian oil shippers to add up to $4 billion to U.S. fuel costs.”

FTC spokesman Mitch Katz told SolveClimate News in an interview that, on average, the agency receives somewhere in the neighborhood of three letters per week on an array of topics from members of Congress. He added that spikes in gas prices often prompt a spate of inquiries from senators and representatives seeking answers.

However, Katz noted that congressional requests for investigations are much rarer, estimating that they arrive at a rate of about one per month.

Wyden’s allegations, Katz emphasized, will undergo an extensive vetting process before the agency reaches any sort of decision about how to proceed and if it’s a case that merits a full-blown investigation that eventually could result in severe consequences for those involved.

“We have the letter and we’re currently reviewing it,” Katz said about Wyden’s request. “We will respond to the senator in a timely fashion. I don’t know how long it will take but we do take every comment and complaint seriously.”

TransCanada Touts Oil Sands Benefits

TransCanada is the Calgary-based oil pipeline company seeking permission to build the 1,702-mile Keystone XL underground through the nation’s heartland.

The multibillion Keystone pipeline system has the potential to double — or perhaps triple — the amount of diluted bitumen flowing to this country from its northern neighbor, though critics say it likely won’t be needed until 2025 or 2030. Between 2000 and 2010, U.S. imports of diluted bitumen grew five-fold from 100,000 to 500,000 barrels per day. That number could balloon to 1.5 million barrels per day by 2019.

In an e-mail exchange with SolveClimate News, TransCanada spokesman Terry Cunha maintained that adding more Canadian heavy crude to the U.S. market has thus far been a boon in the form of lower prices. And he said he has no reason to believe that won’t continue to be the case when and if Keystone XL comes online.

“These facts support our argument that additional Keystone volumes … have added supply to the market, keeping the price of U.S. spot $8 dollars [per barrel] lower than the OPEC price,” Cunha said. “So Keystone benefits U.S. refiners by allowing them access to cheaper crude, and benefits the U.S.-based companies shipping their oil sands crude to market as they receive more per barrel. Again, lower oil prices, lower gas prices.”

Cunha said he was basing his argument on per-barrel figures of oil that TransCanada has collected and compared since the first phase of this U.S. pipeline project — called simply Keystone — started delivering crude to the Midwest last July 1. Diluted bitumen is the primary product transported on Keystone, which runs from Alberta to Illinois and Oklahoma.

If built, Keystone XL’s six-state U.S. portion would stretch 1,375 miles through Montana, South Dakota, Kansas, Nebraska, Oklahoma and Texas. 

It would be inappropriate, Cunha said, to comment on the merit of Wyden’s request for an FTC investigation because “as I understand, the issue is with seven oil companies and not TransCanada.”

Oregon Senator Explains Shippers’ ‘Strategy’

Wyden is one of the senior senators on the Energy and Natural Resources Committee chaired by New Mexico Democratic Sen. Jeff Bingaman.

In his letter to the FTC, Wyden points out that back in October 2008, the Federal Energy Regulatory Commission approved a transportation arrangement between TransCanada Keystone Pipeline and shippers to pay for capacity on the Keystone system. However, both FERC and the Canadian National Energy Board granted the agreement confidential status.

Wyden cites word-for-word September 2009 testimony presented before the Canadian National Energy Board by a firm representing the oil companies, which stated that the businesses are willing to incur higher pipeline tariff costs to avoid the Midwest refineries.

The representative testifying makes it clear that this action will have the effect of “manipulating supply levels, allowing prices of oil refined in PADD II to rise” in a way that will benefit the oil companies and will cause gasoline prices for consumers to rise.

PADD II, which encompasses 15 Midwestern states, is an abbreviation for the Petroleum Administration for Defense District, No. 2. It’s one of the five regional designations used by the Department of Energy and the petroleum industry to designate regional markets.

“This ‘strategy’ apparently relates to an attempt to reverse the recent relative lowering of pricing that has occurred in Midwest refineries,” Wyden writes. “The Canadian oil shippers appear to cooperate to use the new pipeline capacity to expand tar sands operations in Canada and then transfer some of the flows to the Gulf Coast, resulting in higher per barrel costs in the Midwest on all crude oil pipelines.

“The increase would be $3 per barrel overall and $6.55 per barrel sold in Midwest markets,” his letter continues. “This could increase revenue for the Canadian producing industry by $2-3.9 billion per year.”

What About China?

Wyden’s letter also notes that Keystone XL will likely eventually encourage the export of Canadian tar sands out of North America. He emphasizes that China’s state-run oil company, China National Petroleum Corp., is one of the overseas firms that has made substantial investments in Canadian production of oil sands.

 “Current pipeline capacity does not, on its face, warrant the kind of additional foreign investment that is occurring and strongly suggests that exports outside of North America are ultimately envisioned by these investors,” Wyden writes. “Canadian oil would then not only bypass (Midwestern) refineries, but also … refineries in the Gulf Coast; the avowed purpose of the pipeline.”

That potential for significant redistribution of crude oil supplies now destined to U.S. refineries makes it paramount to find out if the shippers did engage in anti-competitive practices, his letter states.

Friend of the Earth Weighs In

While outside observers might think environmentalists would be elated to have fuel prices rise because it would suppress consumption and encourage U.S. investment in alternative energy sources, that particular logic doesn’t apply with tar sands oil shipped on the proposed Keystone XL.

Alex Moore, who leads the dirty fuels campaign at the advocacy group Friends of the Earth, said in an interview with SolveClimate News that this is not an example of Canadian oil companies behaving benevolently to wean Americans of their oil addiction.

“The issue that Senator Wyden is rightly raising is about padding the pockets of the wealthiest corporations in the world,” Moore explained. “From what he’s saying in his letter, they gouge prices for their own profit, not to reduce our use.”

No doubt, he continued, oil prices across the country are far too low because the health, environmental and other costs of harvesting, transporting and burning oil and cleaning up spills aren’t now factored in to what consumers pay per gallon. Putting a price on carbon, he added, would be the fairest way to force that significant adjustment.

Wyden’s letter documents how Canadian oil companies formed an agreement to “keep people addicted to a dirty energy source and … make it as profitable as possible,” Moore said. “They see it as an opportunity to manipulate markets.”