The Key WAS Keystone

A quick recap from two weeks ago–U.S. crude production has more than doubled since bottoming out a decade ago, buoyed on Texas tripling its production to over 100 million barrels per month while North American energy independence is inching close to a reality with America importing the equivalent of Texas from Canada.  The reason this was made possible?

Given the gnashing of teeth in newspaper editorials after Keystone XL was rejected in November, one might be led to believe there isn’t a pipeline running from Alberta to Texas and the Gulf Coast.  One would be wrong–the route depicted in green and solid red has been built, deluging American oil refineries in crude.

Connecting WCS to WTI

XL in reality was/is Keystone Phase IV.   Phase I began construction in 2008 and connects Hardisty to Steele City and Wood River, opening in June 2010.  Phase II was laid down in 2010, which began to pour Western Canadian Select (WCS) and Midwest (PADD 2)-produced oil into the West Texas Intermediate (WTI) hub of Cushing and flow WTI back through Phase I into PADD 2 refineries after II was commissioned in Februrary 2011.  Keystone set off shockwaves:

U.S. Field Production of Crude Oil (Thousand Barrels)

Year	Jan	Feb	Mar	Apr	May	Jun	Jul	Aug	Sep	Oct	Nov	Dec

2008	158,538	149,288	160,980	154,704	159,555	154,100	160,541	155,263	119,409	146,931	152,609	158,497
2009	159,420	146,868	161,738	158,585	166,899	158,224	167,402	166,585	166,852	171,040	161,596	169,032
2010	167,127	155,266	170,589	161,460	167,050	161,366	164,200	168,623	168,240	174,179	166,949	173,534
2011	170,060	150,919	173,630	166,350	173,746	167,071	167,997	174,683	166,849	181,493	179,099	185,712
2012	190,358	180,969	192,929	187,342	195,341	187,783	198,955	194,902	196,683	214,883	210,526	219,442
2013	219,414	198,664	221,986	221,260	226,334	217,908	231,055	232,576	231,823	238,768	236,918	244,074
2014	247,930	226,446	255,562	257,027	265,897	260,348	271,389	273,874	268,774	282,994	276,036	292,278
2015	289,701	264,776	299,238	290,830	293,845	279,453	292,415	291,604	283,481	290,470

For more than forty years, American oil production had been contracting, crushed to a third of its October 1970 peak with its September 2008 nadir.  With Phase I and II, oil production rose 20-30 million barrels per month annually.  Defying reason, for decades America’s oil hub Cushing was not connected by pipeline to the Gulf Coast refinery complex (the largest in the world) until Phase IIIa commenced operations in January 2014. 

The results were predictable–a massive oversupply of crude oil, triggering the Great Glut of 2014-15.  PAR was only surprised the glut took months to materialize–logic dictated January ’14 would have been the starting month.  Logic also dictated that the enduring stupidity that had given birth to the idiotic crack spread would end, but with respect to oil refineries logic remains fleeting, if not entirely impermissible.