23 January 2013

Regarding the XL pipeline

An article in Salon describes a young man's attempt to travel the length of the pipeline.  Most of what I've read before focused on the risks to the Ogalalla aquifer, but while browsing his story, I learned a few other things, most importantly this:
TransCanada, the company that will build the pipeline, has falsely claimed that there will be upward of 20,000 jobs. An independent study, conducted by Cornell University, determined that the pipeline would create only 2,500 to 4,650 jobs, almost all of which will be temporary, and only between 10 to 15 percent of the jobs will be local, in-state hires.

As for the “we need oil” claims, few realize that much of the oil won’t be used in the United States. The oil will be pumped down to Port Arthur, Texas, where it will be refined and shipped off to foreign nations. Valero, one of these refining companies (which will get 20 percent of the Keystone XL oil), will not have to pay taxes on the exported oil since Port Arthur is in a Foreign Trade Zone.
So I looked up the reference for that last point:
The Port Arthur refinery operates as a Foreign Trade Zone (FTZ), which traditionally gives tax benefits to companies that use imported components to manufacture items within the United States. Usually refineries importing oil tax-free will still pay taxes when selling the refined products into the U.S. market. By both importing into and exporting from Port Arthur the company will avoid paying tax on the product sales.
A pretty sweet deal for Valero Energy Corporation (VLO).


  1. I fully understand what is in it for them, but have yet to learn what is in it for us. Why in the world would this even be a consideration?

  2. Hmm.. I need to go do some reading on this. From an initial read, some of the facts in this article seem to be in dispute

    a) How much will the Keystone XL pipeline carry? One source (not in those referenced above) indicates greater than 1 Million barrels per day (bpd).

    b) How much has Valero committed to buy? the article claims Valero has committed to "20% of the pipeline capacity" or "100,000 bpd" But 100,000 bpd is 10% of the pipeline, if the the capability is > 1 Million bpd

    c) How much can the Valero Port Arthur facility process? The 2011 Valero 10-K (available at the Valero web site) says their Port Arthur refinery is capable of processing 310,000 bpd of sweet crude to product. But the referenced articles claim they will achieve 150,000 bpd capability by 2012...

    d) How much advantage can Valero take of the free trade zone? Well, its actually a "Foreign Trade Zone", if you look at the specific mention. If memory serves, under NAFTA there are no tarrifs on Canadian imports. So Canadian oil imports are not subject to taxes. If oil is sold overseas, the refiners have to pay the same income taxes regardless if the oil is consumed in the US or exported. Reference on that is Dennis Puccinelli, "Foreign trade Zones: U.S. Customs Procedures and Requirements", http://trade.gov/exportamerica/TechnicalAdvice/ta_foreign_trade_zones_0203.pdf

    There's also an article at http://www.governor.state.tx.us/files/ecodev/TexasFTZs.pdf on Texas Foreign Trade Zones. On page one it states "Within FTZs, company goods can be unloaded, manufactured, reassembled, tested, sampled, processed, repackaged, and re-exported without the intervention of U.S. customs authorities. Only when goods are moved outside a Zone do they become subject to U.S. customs duties. Zone status may also make sites eligible for state and local tax benefits." Again, this indicates that exports out of the FTZ are taxable, under federal law -- although Texas taxes may be exempted.

    Certainly the article referenced was not a disspassionate discussion -- and I haven't checked the facts there, but a quick look at several points I could quickly reference shows some descrepancy to other data.

    As I said, I need to go read more on this.

  3. Correction.. Valero 10 K states their Port Arthur refinery has throughput capacity of 310,000 bpd of *sour* crude. I mistyped "sweet" in c) above

  4. The way I understand it is that the pipeline was to be a source of thousands of jobs -- that's how the idea was initially touted to US citizens. However, as you have stated, that's just an exaggeration. I've been fighting this pipeline ever since I heard of it, simply because there will be leaks and spills of oil sands that will contaminate wildlife environment and probably aquifers. And I am certain that most Americans do not understand that this oil is not for US use and will not address gasoline prices and/or supply in the US. I have signed petitions and done Facebook postings and written letters to Congress and to the President and to the Secretary of the Interior Salazar, but the oil companies just keep pushing. Let the Canadians run the pipeline through Canada to the Pacific and take the risk along with the profits.


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