Environmentalists are diving into the politically murky pool of fuel export policy as they stoke resistance to the Keystone XL pipeline, branding it as a tool for Gulf Coast refiners to boost production of profitable diesel at the expense of the U.S. gasoline supply.

The new green message carries the promise of mass appeal -- though prices at the pump have fallen in recent weeks, they remain top of mind for many lawmakers. Yet the export case against the Canada-to-U.S. pipeline also ties its opponents to an argument that has the unique ability to put the refining industry and President Obama on the same page.

"We have a competitive advantage, one that we have not had in decades, to export diesel," American Fuel & Petrochemical Manufacturers President Charles Drevna said in a recent interview. The White House has hailed the jobs created and growth powered by the nation's emergence as a net fuel exporter for the first time in 60 years, he added.

Keystone XL's effect on diesel exports is at the heart of a study released yesterday by the Natural Resources Defense Council (NRDC) that slams the $5.3 billion project as a giveaway to refiners who already are investing in upgrades that would wring more diesel out of every barrel of crude they process.

Along the Gulf Coast, the end of the line for XL's heavy Canadian oil-sands crude, "refiners have started reconfiguring their operations to prioritize diesel for international customers over gasoline for U.S. customers," NRDC's Anthony Swift wrote in the study, which was also sponsored by Oil Change International and ForestEthics Advocacy.

The next step in conservationists' argument rests on projections by Keystone XL sponsor TransCanada Corp. and other oil sands interests that carving out a path to the Gulf for their emissions-intensive crude would narrow the "spread" between its price per barrel and the more expensive world price of oil, sometimes known as Brent (Greenwire, Jan. 31). Higher-priced Canadian oil ultimately refined into more diesel per barrel along the Gulf Coast, NRDC contends, would drive up gasoline costs for Americans.

Even TransCanada executive Alex Pourbaix did not deny that Midwesterners currently receiving the bulk of Canadian oil sands crude coming into the country might see higher pump prices as a result of Keystone XL. "I wish I could" say directly that the pipeline would not drive up gas bills in that region, Pourbaix told Rep. Bobby Rush (D-Ill.) during congressional testimony nearly a year ago.

But whether refiners could use the XL project to further pad their diesel exports while decreasing U.S. gasoline supply is a more difficult and fraught question.

Valero, the nation's largest independent refiner, boasts more than half its capacity in the Gulf and plans to add two $1.5 billion hydrocrackers in the region that would boost diesel yield by "maybe 5 percent," spokesman Bill Day said in an interview. The company expects its diesel-to-gasoline ratio to shift to 42 percent to 39 percent by next year, he added, a 6 percent swing toward more diesel than Valero saw in 2010.

Asked what effect that uptick in diesel production would have on gasoline prices, Day challenged the zero-sum relationship between gasoline supply and prices that both anti-pipeline environmentalists and pro-pipeline Republicans often invoke.

"We have more gasoline in days of supply already in this country than we've had in five years," he said, coupled with "a five-year low in terms of demand. That's not necessarily what's bringing down gas prices" in recent weeks.

A 'tax' on gasoline?

NRDC's new study comes as the long-running debate over Keystone XL calcifies into a pre-election stalemate over GOP attempts to override the rejection that Obama handed down in January -- which coincided with the two-year anniversary of his plan to double U.S. exports by 2015.

House Republicans are vowing to press for the inclusion of language fast-tracking the pipeline in a new transportation bill, but a fresh veto threat from the administration last week appeared to dim their chances of winning the necessary support in the Democratic Senate (E&E Daily, May 17).

Greens' new exports-and-pricing study yesterday won hosannas from one House Democrat who borrowed a GOP tactic by mocking the pipeline as a "tax" on gasoline.

"It may be a good idea to foreign investors, but the Keystone XL pipeline is a bad idea for American consumers, a bad idea for America's fledgling economy, a bad idea for our health and a bad idea for our environment," Rep. Dennis Kucinich of Ohio said in a statement.

Yet Drevna, chief of the refiners' lobbying group, threw a ready arm around Obama in calling for the pipeline's approval as a means to replace dwindling supplies of South American and Mexican imported crude. "These exports are keeping Americans working," he said.

Click here to read the environmentalists' new report.