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Why Is Gas Cheaper In Midwest? Thank Canada

Gasoline prices have been on the rise for months now. As the economy improves, demand has gone up. But aside from that, something unusual is happening with gasoline prices in the U.S. this winter: Prices are rising faster on the East and West Coasts than they are in the middle of the country.

Since September, a gallon of regular gas in New York state has gone up 59 cents. In Colorado, it's increased only 25 cents. Some of that increase is because of different tax rates in the two states, but the bulk of it is due to bargain-priced oil coming in from Canada.

When you think "foreign oil," the Middle East probably comes to mind. But Canada actually is the No. 1 supplier of foreign oil to the United States. The amount of oil Canada delivers to this country is growing, thanks in large part to the Alberta oil sands.


A Bottleneck

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 and a bottleneck has developed in Cushing, Okla.

"Because there are no pipes going south from Cushing to Houston, the oil backs up there and as inventories build, prices go down," says Philip Verleger, an oil market analyst and professor at the University of Calgary.

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


"Consumers in Colorado, consumers in Illinois, consumers in Minnesota should all be sending thank you notes to the province of Alberta," says Verleger, who lives in Colorado. "We're benefiting from the increased supply in Alberta because it can't make its way to the Gulf Coast."

Glenda Walden of Lakewood, Colo., recently filled up her 2001 Honda Civic for $2.99 a gallon — about 25 cents more than she paid in September.

In New York, the increase has been more than twice that. But that's cold comfort for Mark Fox of Denver, who spent $75 dollars on gas for his sport utility vehicle.

"That's what they cap you at [on] the credit card — so can't even fill up anymore, but we do what we can," he said. "It's tough, though."

Still, when he finds out why he's getting a better deal than a New Yorker, Fox shows his appreciation: "Thank you, Canada!"

Pipeline Problems

What's been a boon for some U.S. drivers 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.

"We, as a company, submitted our application for this proposed pipeline back in 2008 to the U.S. Department of State," says Terry Cunha, a TransCanada spokesman. "And we're continuing to wait for a decision."

The State Department must issue what's called a "presidential permit" for the project because it crosses an international boundary. The department says it's still gathering information about things such as the environmental effects of the pipeline.

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

"If the new pipeline is not approved, Alberta has a serious problem of what to do with the crude," Verleger says.

Companies in Alberta and Oklahoma are building more oil tanks, hoping storage will relieve the surplus. But 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.

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