The two biggest sources of oil in North America produce significantly different types of oil, and the lack of infrastructure to link those sources to proper refineries results in higher costs and less competitiveness on the global oil market.

A great piece from ZeroHedge, Oil Price Differentials: Caught Between The Sands And The Pipelines, provides a useful background to US energy infrastructure, and how it is impacting (impeding) the vast flow of Canadian oil.

A “range of oil qualities and a raft of infrastructure issues are creating record price differentials. And with no solution in sight, [the authors] think those differentials are here to stay.” Historically, United States oil infrastructure has been built to refine large quantities of imported oil – essentially from the perimeter of the lower 48 states, and shipping it towards the interior – but this is the opposite of present day needs, which require oil from the interior of the country to be moved to outlying refineries.

The Bakken Shale (North Dakota) is on the verge of making ND the second greatest oil producing state in the US, and it is fairly ‘light’; but the other gigantic source of oil is Canada’s oil (tar) sands, which is significantly heavier and requires much different type of refining processes than Bakken Shale oil. What’s more, global oil production is going the way of Canada’s tar sands: “In general, global production is gradually moving towards heavier, sourer crudes because the easy deposits of light, sweet crude are being tapped out. And that has forced refineries to evolve.”

Canadian heavy oil currently only makes it to Oklahoma in the US, and not all the way to the necessary refineries in the Gulf Coast. So the problem is, do closer refineries upgrade, or do more pipelines be built? There is growing glut of unrefined oil in Cushing, Oklahoma – and this massive store of oil is losing its value because of it’s lack of mobility. Keystone XL and other infrastructure projects may help – but these infrastructures will not happen at the same rate of oil production, so the oil remains immobile, and at a lesser value because of it. Combine this with the already lower price of the ‘tar’ oils (because they are so heavy/’dirty’ and harder to refine), and the troubles are multiplied.

So when we think about the energy future of the US, considering the net cost of upgrading the infrastructure system is necessary. Does the US want to upgrade refineries to deal with Canadian oil without transporting them across the country? Does it want to invest in pipelines? There are other factors, of course, such as the shale gas boom. Not to mention the myriad environmental concerns regarding further hydrocarbon infrastructure investments -- such as their cost and their further enabling fossil fuel's dominance in the US energy mix. Even in terms of energy security, would a US developing new oil infrastructure ultimately be more strategically advantageous? There are many benefits and risks associated with these questions, but it knowing where we are now is an important first step.