Ramped up domestic oil production and alternative supply routes have lessened the U.S.’s need for the hundreds of thousands of barrels of oil that would have been pumped daily through the now-cancelled Keystone XL pipeline, some industry experts say.
On Wednesday, not long after being sworn in as president of the United States, Joe Biden fulfilled a campaign promise by signing an executive order scuttling the 1,897-kilometre pipeline expansion as part of the administration’s effort to fight climate change.
The project, first announced in 2005, would have carried 830,000 barrels of crude a day from the oilsands in Alberta to Nebraska and connected with the original Keystone pipeline that runs to Gulf Coast refineries.
“I really don’t think that this works out to be a major, significant change to American oil supply right now,” said Warren Mabee, director of Queen’s University’s Institute for Energy and Environmental Policy.
“The flow of oil out of Canada … is now a much smaller part of any big U.S. energy strategy. They’ve got the capacity in the States to be able to make up for that. They’re not really counting on the additional capacity, the growth that Keystone XL would bring.”
A ‘gut punch’
Prime Minister Justin Trudeau said he was disappointed with Biden’s decision, but Alberta Premier Jason Kenney called it a “gut punch” and federal Conservative Leader Erin O’Toole described it as “devastating.”
While supporters of the project north of the border say the decision represents a major loss for Canadian jobs and oil production, it likely won’t have a similar negative impact on U.S. oil supply, some experts say.
And that makes the prospect of changing the administration’s mind even more unlikely.
“A decade ago, we were integral,” Mabee said. “In fact, the United States would think of Canada as part of the United States when they were looking at their energy supply. And I don’t think that’s the case anymore.”
As well, there was no guarantee that adding 800,000 barrels a day of capacity would lead to 800,000 barrels a day of additional production in the oilsands, said Mabee.
With Canada already moving 500,000 barrels a day by rail to the U.S., Keystone XL may have just picked up the slack from the rail system, he said.
Weaned off imports
In the years since Keystone XL was first proposed, the U.S. significantly increased its oil production through the hydraulic fracturing of shale. This resulted in a 230 per cent surge in U.S. crude production, or an extra 6.9 million barrels a day, said Michael Tran, managing director of global energy strategy at RBC Capital Markets. Total U.S. crude imports have dropped significantly as well.
According to the U.S. Energy Information Administration, in 2019, the U.S. produced about 19.25 million barrels per day and consumed about 20.4 million barrels.
Since the 1990s, Canada’s share of total crude oil imports to the U.S. has increased, accounting for 56 per cent of the supply in 2019.
However, by that time, total U.S. crude oil imports were down by about one-third compared to 2005 volumes.
“So the U.S. has just really weaned its way off of global imports in a really big way during that period,” Tran said. “The domestic shale revolution has completely altered the U.S. landscape and its dependency on foreign oil.
“The U.S. need for Canadian oil is not to the same urgent degree as it has been in the past.”
David Braziel, CEO of RBN Energy, an energy markets consultancy based in Houston, Texas, said that when the Keystone XL project was first announced, back in 2005, the U.S. was certainly in need of the additional capacity that would have been produced.
But as the project continued to stall, the industry found alternative supply chains. Producers began relying more on rail to transport oil supplies while other pipelines expanded incrementally to help move those additional barrels to U.S. markets, Braziel said.
The U.S. is also counting on the expansion of the Trans Mountain Pipeline, which heads west from Alberta to B.C. and connects with a pipeline to Washington state, and Enbridge Line 3, which also begins in Alberta and crosses Minnesota to Superior, Wis.
In late July, the Trump administration approved the existing Keystone pipeline to ship 29 per cent more Canadian crude into the U.S. Midwest and Gulf Coast.
“So, there’s a lot of additional capacity that could come on to fill the gaps. If the Keystone XL was there, [we would] definitely use it, but if it’s not there, then there are other ways to get to market,” Braziel said.
Andrew Lipow, CEO of Lipow Oil Associates, a petroleum consulting firm based in Houston, Texas, said the Keystone XL pipeline certainly could have been used to increase crude oil production that ultimately would have been delivered to U.S. refineries, many of them on the Gulf Coast, displacing imports from other parts of the world.
“And those other imports that the Gulf Coast relies on come from areas of the world that may be politically unstable or have other supply issues,” he said.
As well, while shale production has resulted in the U.S. becoming a major exporter of crude oil, that oil is of the “light sweet variety,” Lipow said. And many U.S. refineries are configured to prefer the heavy sour crude that comes from Alberta.
“The Canadian crude is actually less expensive than the light sweet crude coming out of the shale producing regions [in the U.S.],” he said.
Still, while the U.S. refineries would prefer Alberta crude pumped through Keystone XL, they can still use U.S. crude oil, he said.
Meanwhile, U.S. motorists are unlikely to see any spike in gas prices as a result of the Keystone XL decision, Mabee said.
“It’s not going to leave Americans paying three times as much for their gasoline,” he said. “It probably won’t affect their price at all.”