Did Jim Cramer just imply that the Keystone XL expansion will raise gas prices?

I was just listening to Jim Cramer yak on his Mad Money show, about oligopolies. He was spiel was targeting US refiners and the bottleneck of bringing new refining capacity online, when he drifted ever so slightly to the split in price between Brent Crude and WTI. He noted that the reason for this differential was that the oil from the Heartland / Texas / Oklahoma region has trouble reaching ports in order to export, and therefore local refiners had better bargaining to get that oil at a discounted rate.

Considering WTI is lighter (lower sulfur content) than Brent, it should be priced higher than Brent.  The cost of transportation to a port certainly seems credible.  So what does this have to do with the Keystone XL pipeline?

West Canada Select is priced $16 lower (it was much lower, in 2012) than WTI, making it about a $30 gap to Brent.  That would imply that, because WCS is even more transportation-constrained, those folks currently in the Midwest are getting quite the bargain as there are no other buyers.

via Wikipedia

The two proposed pipeline extensions of the Keystone XL, is designed to hook up the Athabasca Oil to ports in East Texas, for export.  That Canadian oil will then have multiple bidders, and the price will go up.

The cost of building the pipeline will also offset earnings via tax breaks for those companies benefiting from the pipeline.  Thus, a lot of oil people will be getting richer while the folks in the Midwest will be feeling poorer as gasoline prices increase.

And as it turns out (and unbeknownst to me prior to writing this up), my hypothesis was previously highlighted by the NRDC:

"If built, the Keystone XL pipeline daily would transport up to 830,000 barrels of the world’s dirtiest oil through America’s heartlands and breadbasket—diverting oil from Midwestern refineries, which now produce more gasoline per barrel than any other region in the United States. 

Today Midwestern refineries buy crude oil at deep discounts, allowing them to produce gasoline far more cheaply than they could otherwise. Keystone XL would change that, the study said."

via EIA

Bidding competition means prices should go up, not down.  But let's say that in some strange world prices go down despite more bidders.  Two things to consider:

1. Gasoline refining won't necessarily increase in the Gulf, just because there's more oil coming in from Canada; after all, refining capacity is adjusted to meet demand at the pump, and the Gulf already has one of the highest volume of oil coming through it;
2. Gasoline markets are relatively local; oil refined to gasoline on the East Coast, isn't trucked across the country.  Even if every drop of oil from Canada were to be solely refined in the US, the only states to see this benefit would be regional areas: Gulf Coast PADD3.

Further, you have to understand that, because tar sands (Athabasca Oil Sands) are more difficult to process and extract oil, Canadian producers have an incentive to find the highest price above their baseline (production cost), not to lower their price.

Obviously, it is fully reasonable that if Keystone XL isn't expanded, Canadian oil companies will build a horizontal pipeline through Canada, out to a Canadian port.  If that happens, domestic oil prices will rise and people will point to this increase, as proof that the XL was needed in the US.

But again, the point of Canadians building the pipeline wasn't to benefit Americans; it was to raise the price of their oil products.  The best way to raise the price of their oil has always been to make it readily available to the global market place via cheap transportation; going through the US was their cheaper option because of existing pipelines, and nothing more.

(There is much more to all this, considering the number of temporary jobs and a slight increase in permanent jobs at Gulf ports, as well as the cost of greenhouse gas emissions.  With Canada unwilling to impose strict emissions rules for tar sands extraction, we are practically subsidizing their pollution, and, if in 20 years the world is hell because of greenhouse gases, that pipeline will be all but dead and those jobs lost.  But this post is already too long.)