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Why LI pays the highest gas prices

Long Island, NY, February 17, 2012 Stephen R. Kelly teaches courses on energy security and North American issues at Duke University.

The price of gasoline is spiking again, but the pain is not being shared equally.

Drivers on Long Island paid an average of $3.82 a gallon last week, the highest in the country according to the Lundberg Survey. But people gassing up in Denver paid only $3.01 on average, the country's lowest.

Why the difference? Taxes account for a small part of that gap, but for the bulk of it, blame Canada.

Over the last 20 years, Canada has quietly become our largest foreign source of petroleum products, supplying almost a quarter of the oil we have to import.

Most of this new supply flows from the oil sands region of Alberta, Canada, to the U.S. midsection, creating a glut there that depresses prices and holds down the pain at the pump in places like Denver.

Unfortunately, as we will see in a minute, this cheap Canadian crude doesn't spread as far as Long Island.

The shorthand version of why this happens centers on the quiet town of Cushing, Okla., where oil pipelines from Texas, Canada and other domestic oil-producing regions converge. The oil in Cushing's tanks is traded on the NYMEX, setting an index price for U.S. oil called WTI.

While domestic conventional oil production has been flat for years, production from Canada and other unconventional sources, like the Bakken oil shale of North Dakota, has surged, flooding those tanks. With only limited ways to move it to other markets, such as Gulf Coast ports and refineries, the backup in Cushing has depressed the WTI price.

For more than a year, in fact, WTI has been far below -- sometimes by as much as 20 percent -- the price of North Sea oil, an index for world oil prices.

Which helps explain the big difference in gasoline prices in Denver and on Long Island.

Denver's two refineries get part of their oil directly from Canada and pay for much of the rest based on the low WTI price. The price of oil on the U.S. East Coast, by contrast, tends to follow the North Sea price, which has been jolted upward recently by riots in Nigeria and tensions in the Persian Gulf, two traditional U.S. oil sources.

The difference is quickly felt at the pump. According to the Energy Information Administration, regular gasoline in the Rocky Mountain states has actually dropped 32 cents since Thanksgiving. It's shot up 13 cents in the rest of the country, including New York.

For most Americans, the first time they learned we get so much oil from Canada was during the recent dispute over building the Keystone XL pipeline, which would have moved even more Canadian oil to the United States. That pipeline became a target for environmentalists and election-year politicians, and it's been shelved for now.

But the current troubles in Nigeria and Iran cast that decision in a different light.

Canada is a stable, reliable, democratic ally that is also right next door. It's also our largest trading partner, so a dollar sent to Alberta for oil is much more likely to return to buy a lug nut in Levittown than greenbacks sent to Saudi Arabia or Nigeria are.

Canadians were indeed sore over the Keystone decision, but they are unlikely to start bankrolling terrorists as a result. They may, however, try to find other places to sell their oil, like Asia.

The good news is that they'd still need a pipeline to do so, and building one in Canada is no easier than in the United States. The bad news is, while a U.S. aircraft carrier parries Iranian speedboats in the Person Gulf, we are making them think about it.

All this to say that the recent surge in gasoline prices may not be entirely negative. It gives us a good excuse to reflect on where we get our oil, and what it really costs -- whether you're driving to Pikes Peak or Massapequa.

National Oilheat Research Alliance ECC is funded in part through the National Oilheat Research Alliance.