Americans seem especially gullible to misinformation when they’re bleeding at the gas station.
With the Russia-Ukraine war pushing gas prices well above $4 per gallon, motorists are looking for somebody to blame—and President Biden’s critics sense an opportunity. Leading Republicans such as House Minority Leader Kevin McCarthy say Biden’s decision to cancel the Keystone XL pipeline last year explains why gas prices are so high now. Former Vice President Mike Pence is running ads claiming killing Keystone XL made the United States more dependent on Russian oil. Fox News tells viewers gas prices would fall if Biden would only reverse the Keystone XL decision. Here at Yahoo, people write in frequently to echo these claims.
It's all nonsense. The Keystone XL pipeline would have been a new way for one Canadian energy firm to ship oil to the United States. But the nation still gets all the oil it needs from Canada, its own producers and many other countries.
“People have this idea that because Keystone XL was not completed, the oil just disappeared. It didn’t,” says Samantha Gross, director of the energy security and climate initiative at the Brookings Institution. “That oil got produced anyway and is still getting to market through trains and other pipelines.”
There's never been any lost supply
Canadian firm TC Energy proposed the Keystone XL pipeline in 2008, as a way to ship more oil from Alberta, Canada to Nebraska, where it would then enter existing pipelines for final transport to Gulf Coast refineries. There were other pipelines bringing Canadian oil to the United States, but XL would have been a more direct route that also added capacity. The project drew local and national opposition from the beginning. The type of oil TC Energy wanted to transport was unusually dirty, triggering environmental protests. Local communities, including Native American tribes, worried about spills along the 882-mile U.S. portion of the pipeline.
[Follow Rick Newman on Twitter, sign up for his newsletter or send in your thoughts.]
After years of debate, the Obama administration denied a national permit needed for the project in 2015. That stopped it. In 2019, President Trump reversed that position, allowing construction to begin. As a presidential candidate in 2020, Biden pledged to revoke the permit, and on his first day in office in 2021, he did. Last June, TC Energy officially canceled the project.
Had the pipeline been built, it would have delivered 830,000 barrels of oil per day from Canada to the Gulf Coast, where refineries would process it into gasoline and other finished products. TC Energy never said where those products would end up. They could have been sold in the U.S. market, or loaded on tankers for export to other nations. It’s flawed logic to assume this would have represented a huge boost in U.S. gasoline supply that would have lowered prices.
The United States consumes about 20 million barrels of crude oil products per day. So the quantity that would have moved through XL would have represented about 4% of U.S. consumption. If you removed that much oil from the U.S. market all at once, it would be enough to bump prices upward, at least until new supply replaced the lost oil. But that’s not what happened. The XL pipeline was never built, and it never brought any oil to the United States. So there’s never been any lost supply.
This leads to the iffy logic about future supply, which is where the argument about XL’s impact on gas prices breaks down. Canadian oil imports to the United States have risen consistently for the last 20 years, with the only decline coming in 2020, when the COVID pandemic caused a short recession and slashed oil demand worldwide. From 20008, when TransCanada first proposed the XL pipeline, through 2019, Canadian oil imports rose 77%. In 2020, the last year of the Trump administration, Canadian oil imports fell 6.7%. But in Biden’s first year, 2021, they rose 4.5%. The post-COVID recovery means Canadian oil imports could hit a new high this year—without Keystone XL.
The amount of oil that would have flowed through XL, 830,000 barrels per day, equates to about 303 million barrels per year. From 2008 to 2021, Canadian oil imports to the United States rose by 672 million barrels per year. So total Canadian imports have grown by more than double the amount XL would have carried.
We have other pipelines
How is all that oil getting here? Mostly by other pipelines. While TransCanada didn’t get the capacity expansion it wanted, energy firm Enbridge is doubling the capacity of its Line 3 pipeline, which runs from Alberta to refineries in the U.S. Midwest. That will eventually transport 760,000 barrels of oil per day. An expansion of the Trans Mountain pipeline that moves oil from Alberta to ports near Vancouver will boost capacity from 300,000 barrels per day to 890,000. That oil can move by ship to the U.S. Gulf Coast or foreign ports. There’s also been a sharp increase in Canadian oil deliveries by rail, though that represents a small portion of Canadian imports, and it dropped off after COVID.
Fixating on oil from Canada, or from any single source, overlooks the dynamism of energy markets and refiners’ ability to purchase raw crude from many sources, both domestic and foreign. If one source of oil dries up, other producers typically step in, as long as the demand is there. If missing oil from XL had dented the U.S. supply of gasoline, pushing prices up, then that would show up as excess capacity at U.S. refiners. But there’s been no increase in excess capacity, except for when COVID hit.
U.S. refining capacity hit a record high at the beginning of 2020, right before the COVID downturn. The portion of oil arriving at refineries from domestic sources also hit a new high, with foreign oil from Canada and elsewhere dropping from 69% of refinery input in 2010 to just 28% in 2020. With imported oil from every source becoming less important, imported oil from a single pipeline doesn’t even register.
Capacity utilization at refiners would also have fallen if the missing XL oil left refiners short of oil. That also hasn’t happened. Capacity utilization actually rose from 2008-2019, which indicates refineries were getting all the oil they needed.
Refinery capacity and utilization both declined during COVID, amid an abrupt drop in transportation. But both are headed up again, in line with the global economic recovery.
Many factors determine oil and gas prices, which are largely set in global markets no American president has ever been able to control. Oil producers in dozens of countries determine how much to produce based on demand, desired profit and geopolitical shocks such as Russia’s barbaric invasion of Ukraine and the resulting sanctions on the country. At the moment, most of those producers, in the United States and elsewhere, are cautious about overproducing, as they did from 2015 through 2020, when low prices roiled the industry and caused hundreds of oil and gas bankruptcies in the U.S. alone.
As a portion of world oil production, the amount of oil flowing through the XL pipeline would not have registered until the third decimal point. Had that oil disappeared from the market, it would have had no discernible impact on global prices. But the oil is still there, even though Biden’s critics pretend it’s gone. It’s not easy to make oil disappear, and Biden didn’t.
Rick Newman is the author of four books, including "Rebounders: How Winners Pivot from Setback to Success.” Follow him on Twitter: @rickjnewman. You can also send confidential tips.
Follow Yahoo Finance on Twitter, Instagram, YouTube, Facebook, Flipboard, and LinkedIn