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Why Is Gas Cheaper In Midwest? Thank Canada

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Why Is Gas Cheaper In Midwest? Thank Canada


Why Is Gas Cheaper In Midwest? Thank Canada

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  • <iframe src="" width="100%" height="290" frameborder="0" scrolling="no" title="NPR embedded audio player">
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As the economy improves, demand for gasoline has gone up - one reason the price has been on the rise for months. But aside from that, something unusual is happening with gasoline prices this winter: They're rising faster on the East and West Coasts than they are in the middle of the country.

As an example, in September, a gallon of regular gas in New York state has gone up 59 cents. In Colorado, that same gas has gone up only 25 cents. Some of the increase is because of different tax rates in those two states. But as NPR's Jeff Brady reports from Denver, a big reason for that difference in price between the coasts and the middle of the country is bargain-price oil coming in from Canada.

JEFF BRADY: Think foreign oil, and the Middle East probably comes to mind. But Canada actually is the number one supplier of foreign oil to the U.S. And the amount of oil Canada delivers to this country is growing, thanks in large part to the Alberta oil sands.

Despite protests from environmentalists, Canada's oil sands business is booming. Much of that crude heads into the U.S. through a network of pipelines. But pipeline construction hasn't kept up, so a bottleneck has developed in Cushing, Oklahoma.

Philip Verleger is an oil market analyst and professor at the University of Calgary.

Professor PHILIP VERLEGER (Strategy and International Management, University of Calgary): Because there are no pipes going south from Cushing to Houston, the oil backs up there. And as inventories build, the prices go down.

BRADY: That means crude in the middle of the country is selling for about $15 a barrel less than it would on the world market. And Verleger says you can see that reflected at gas pumps in the middle of the country.

Ms. GLENDA WALDEN: My name is Glenda Walden. I live in Lakewood, Colorado, and I'm filling up a 2001 Honda Civic.

BRADY: And how much you paying here?

Ms. WALDEN: Looks like $2.99 a gallon.

BRADY: That's about 25 cents more than Walden paid in September. But in New York, the increase has been more than twice that. Still, this fact is cold comfort for Mark Fox of Denver. He just spent $75 on gas for his SUV.

Mr. MARK FOX: That's what they cap you at the credit card, so can't even fill up anymore. But, you know, we do what we can. It's tough, though.

BRADY: I explained to Fox that he's actually getting more gas for his $75 than a New Yorker would, thanks to the oil from Canada.

Mr. FOX: That's good to know.

BRADY: Do you want to take an opportunity to say thank you to Canada?

Mr. FOX: I'm a big hockey fan; that's tough to say. But OK, thank you, Canada.

BRADY: What's been a boon for drivers in the middle of the U.S. is considered a problem by Canadian oil companies. They don't like selling their oil at a discount. So the firm�TransCanada�has proposed a new pipeline that would make it easier to relieve that bottleneck in Oklahoma and get oil down to the Gulf Coast, where it would fetch higher prices. Terry Cunha is a spokesman with TransCanada.

Mr. TERRY CUNHA (Spokesman, TransCanada): We, as a company, submitted our application for this proposed pipeline back in 2008 to the U.S. Department of State.

BRADY: The State Department must issue what's called a presidential permit for the project because it crosses an international boundary. No decision has been made yet, and the department says it's still gathering information about things like the environmental effects of the pipeline.

Oil market analyst Philip Verleger says meantime, an increasing supply of Canadian oil continues to flow into the U.S.

Prof. VERLEGER: If the new pipeline's not approved, Alberta has a serious problem of what to do with the crude.

BRADY: Companies in Alberta and Oklahoma are building more oil tanks, hoping storage will relieve the surplus. But with increasing production, and until there are more ways for Canada's oil to get to the broader market, drivers in the middle of the country will continue to benefit.

Jeff Brady, NPR News, Denver.

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