Washington (Platts)--3Feb2012/554 pm EST/2254 GMT

US Representative Ed Markey and other opponents of the proposed Keystone XL pipeline introduced legislation Friday requiring that all petroleum products refined from crude carried by the controversial project be sold in the US.

TransCanada wants to build the 1,700-mile pipeline to carry heavy crude from Alberta's oil sands to refineries on the Texas Gulf Coast. The Obama administration last month rejected TransCanada's application for a key license to build the pipeline, but the company said it would reapply and hopes to put it into service in late 2014.

Market observers expect refiners to export some of the Keystone XL supplies, but just how much remains in dispute. The US has exported more refined products than it imports for nine of the last 12 months, according to the Energy Information Administration, a dramatic turnaround that made fuels the top US export last year.

Markey, Democrat-Massachusetts, said his bill would "call the bluff of Keystone XL supporters" by questioning their claims that the project serves national security interests by increasing US oil imports from friendly governments. He added that exporters would unfairly dodge US taxes because Port Arthur, Texas, is a foreign-trade zone, a duty-free area for products handled and then re-exported.

"You can't sneak a 1,700-mile pipeline past the American people, and you shouldn't be able to sneak the oil out of the United State either," Markey said. "Other countries shouldn't be allowed to bisect our country with a pipeline and then bypass our citizens to send the oil abroad."

A spokeswoman for the International Trade Administration could not immediately confirm that Keystone XL exports would be tax free.

The bill has little chance of getting a vote in the Republican-controlled House, but Markey said the exports issue deserved a higher profile in the seemingly never-ending Keystone XL debate.

'NORTH KOREAN STYLE' ECONOMICS

During a hearing of the House Energy and Commerce Committee, Representative Morgan Griffith, Republican-Virginia, said the possibility of exports did not trouble him or sway his support for the project.

"If you accept the argument that the oil's going to come in and the oil's going to go out to other countries... you also have to accept the argument that before it goes to the other countries it's going to be refined in the United States, thus adding value," Griffith said. "To do that you have to add jobs. And when you add that value, you add strength in our economy and tax dollars."

Representative Charlie Gonzalez, Democrat-Texas, agreed that selling Keystone XL supplies overseas after refineries in his state processed it posed no problems, as long as those plants refined it safely. "Exporting is good. Balance of trade creates jobs and such," he said.

Committee Chairman Ed Whitfield, Republican-Kentucky, said the US should aspire to increase its exports.

"Not of oil," Markey interjected. "Not of oil. That's our security."

The American Petroleum Institute later Friday highlighted that crude brought to the Gulf Coast on Keystone XL would mostly be used by refineries there, adding that occasional exports would also be beneficial to the US.

"Any effort to restrict market forces on commodities like oil and natural gas is a North Korean style model of economics and has no place here in America," said API Chief Economist John Felmy. "Having the flexibility to export more should there be an occasional surplus of supply would go a long way to help reduce our trade deficit. We don't think that American farmers would appreciate Mr. Markey calling on them to restrict their products, and it makes no sense for an elected official to suggest this backward approach with energy."

--Meghan Gordon, meghan_gordon@platts.com