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Tom Kertscher
By Tom Kertscher February 15, 2021

Keystone XL suspension probably won’t boost oil prices for Americans

If Your Time is short

  • Experts cite a number of reasons why consumers likely won’t see price increases.

  • To stay competitive, Canadian oil producers may absorb the added costs of transporting oil by rail, rather than charging U.S. refiners more.

  • Oil prices are largely determined by world markets.

  • Most of the oil to be carried by the pipeline would have been exported.

One of President Joe Biden’s first official acts effectively halted construction of the Keystone XL pipeline, which was designed to help carry up to 830,000 barrels per day of crude oil from Canada to the Gulf Coast.

Does his executive order also make oil more costly for average Americans?

A Facebook post, appearing eight days after the order, claimed: "Stopping the pipeline did not change our use of oil. It just made oil more expensive for us to use. Thanks Joe!! What an idiot!!!"

The post was flagged as part of Facebook’s efforts to combat false news and misinformation on its News Feed. (Read more about our partnership with Facebook.)

There’s no evidence yet that Biden’s decision, which fulfilled a campaign promise dating back to at least May 2020, triggered any spike in oil prices that affects consumers now.

But what about the impact over time? We talked to several experts to gauge what effect Biden’s order might have on future prices consumers pay for refined oil products like gasoline, diesel or heating oil. 

Some said that given constant demand, taking away the pipeline option would make transporting crude oil less efficient and more costly, at least for producers.

But most of them said they doubted that those higher costs would make their way to U.S. consumers, given where the Canadian oil was likely headed, and how the oil markets operate.

The pipeline and Biden’s order

The Keystone XL pipeline, first proposed more than a decade ago, was to have transported crude oil from Alberta, Canada, to Steele City, Neb., where it would connect with another leg stretching to Gulf Coast refineries. 

The Trump administration backed the project in the face of objections from environmental groups. The company building it announced in March 2020 that it was launching construction, saying it would invest $8 billion in the project, with service expected to begin in 2023. But the project was stalled again by litigation over environmental concerns.

Biden’s order revoked the pipeline’s construction permit. He said the pipeline would "not be consistent with my administration’s economic and climate imperatives." 

No immediate price boost

For two benchmark products, the price of oil trended downward in the time between Biden’s order and the Facebook post.

The price of West Texas Intermediate crude oil on the spot market was $53.16 per barrel on Jan. 20, according to the U.S. Energy Information Administration. It was lower each day between then and Jan. 28, the date of the Facebook post, when it was $52.26. The price of Europe Brent was $55.66 per barrel on Jan. 20. It rose 2 cents the next day, but then was lower each day and was $54.87 on Jan. 28.

The U.S. Energy Information Administration and the Department of Energy told us they had no analyses on what suspending the pipeline might do to prices.

Several energy economics experts we talked to said they saw no evidence that Biden's order has already had an impact on the cost of oil, particularly for consumers.

Because the pipeline "would not be available for some time, I do not see how the Biden decision could have already affected the price of oil for consumers," said Jay Hakes, administrator of the EIA during Bill Clinton’s presidency. "If there is any long-term impact on prices at the pump, the change would be very small and unnoticed by customers."

How experts see the impact on costs

Some experts expect that Biden’s order will result in higher costs in the future, at least for producers, if oil demand recovers. 

"It almost certainly will. Killing KXL does nothing to reduce demand for hydrocarbons. It will only make everything more expensive for consumers," said Michelle Michot Foss, a fellow in energy, minerals and materials at Rice University in Houston. 

"Constraining sources of supply, especially when demand is building, always impacts prices," Foss said. "Give it a year."

Brook Simmons, president of the Petroleum Alliance of Oklahoma, said that "without pipeline transportation, product must be moved by less efficient, more costly" rail or truck. 

Toby Mack, president of the Energy Equipment and Infrastructure Alliance, which represents businesses that support natural gas and oil operations, cited a 2014 report from the nonpartisan Congressional Research Service on railroad transportation of crude oil that said "railroad transport reportedly costs in the neighborhood of $10 to $15 per barrel compared with $5 per barrel for pipeline." That report also said the Keystone XL "could move a significant proportion" of crude oil shipments "off the rails, as pipeline transportation is likely to cost less per barrel."

Other experts don’t see those higher transport costs automatically being passed on to U.S. consumers, for a variety of reasons. They point to larger market forces that affect prices, including the relatively high worldwide supply of oil. Plus, they note, most oil passing through the Keystone would have been exported, so Americans wouldn’t be the ones paying for it.

Less pipeline capacity likely means Canadian oil producers have to use rail more to transport oil to refiners. But they would be under competitive pressure to absorb the added costs of that rather than passing them on, said Richard Masson, chairman of the World Petroleum Council Canada and an executive fellow at the University of Calgary School of Public Policy.

"This is because U.S. refiners, particularly on the Gulf Coast where KXL was aimed, have the ability to import crude from tankers, and therefore pay the global price for it," he said. "If Canadian crude was to get more expensive than global crudes on tankers, the U.S. refiners would shift to a higher level of tanker imports."

Hakes said most analysts believe that delivery by rail is somewhat more expensive than delivery by pipeline, "but the difference is slight and transportation of crude oil to refineries is a very small part of the overall cost of gasoline at the pump. That is why, if the argument is that motorists will see a difference in purchase prices, it is highly dubious." 

Moreover, the world can currently produce much more oil than is needed to meet demand, so "I am confident that the cancellation or delay of the Keystone pipeline would not have any impact on gasoline prices at the pump," Hakes said.

Global demand for oil has been depressed over the past year by economic slowdowns caused by the COVID-19 pandemic.

Economics professor Robert Godby, deputy director of the University of Wyoming's Center for Energy Regulation and Policy, said oil prices are set in world markets and "we don’t suffer from supply constraints in this country that raise the cost of oil." 

The Keystone XL "could have alleviated some local and regional pipeline bottlenecks in the upper Midwest and northern Rocky Mountain region, but overall should not have been expected to lower oil or gasoline prices in the U.S.," he said.

Keystone XL was not designed to supply the U.S. market, but to deliver oil from Canada mainly for export to foreign markets, said Tyson Slocum, energy program director at Public Citizen. The consumer advocacy group, which opposes the pipeline, has argued that historically, the average U.S. price of gasoline rises when domestic oil exports increase. 

Our ruling

A Facebook post claimed Biden’s order stopping the Keystone XL pipeline "made oil more expensive for us to use."

We found no evidence to support the claim that Biden’s order has made oil more expensive for consumers. Spot market prices for benchmark products fell slightly in the days after the order.

As for the future impact, some experts said that without the pipeline project, Canadian oil producers would face higher costs to transport oil, which could raise consumer prices.

But most of the experts we spoke with said they didn’t expect the higher transport to affect U.S. buyers, since the Canadian oil was mostly destined for export and producers would face competitive pressure to absorb the added transport costs rather than passing them along. They also say transportation costs are a small factor in the cost of oil products.

We rate the statement Mostly False.

Our Sources

Facebook post, Jan. 28, 2021

Washington Post Fact Checker, "Will the Keystone XL pipeline lower gasoline prices?", March 2, 2012

Email, Michelle Michot Foss, a fellow in energy, minerals and materials at Rice University, Feb. 9, 2021

Email, Independent Petroleum Association of America spokeswoman Jennifer Pett, Feb. 10, 2021

U.S. Energy Information Administration, "Cushing, OK WTI Spot Price FOB," Feb. 3, 2021

U.S. Energy Information Administration, "Europe Brent Spot Price FOB," Feb. 3, 2021

Email, economics professor Robert Godby, deputy director of the University of Wyoming's Center for Energy Regulation and Policy, Feb. 9, 2021

Email, Richard Masson, chairman of the World Petroleum Council Canada and an executive fellow at the University of Calgary School of Public Policy, Feb. 10, 2021

Email, Brook Simmons, president of the Petroleum Alliance of Oklahoma, Feb. 10, 2021

Public Citizen, statement, Jan. 6, 2015

Email, Jay Hakes, administrator of the U.S. Energy Information Administration during the Clinton administration, Feb. 10, 2021

Congressional Research Service, "U.S. Rail Transportation of Crude Oil: Background and Issues for Congress," Dec. 4, 20414

Email, Tyson Slocum, director of Public Citizen’s energy program, Feb. 10, 2021

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Keystone XL suspension probably won’t boost oil prices for Americans

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