misleading oil pipeline points

March 8, 2022

Heather Cox Richardson

Mar 9

This morning, President Joe Biden announced an executive order that will ban the import of Russian oil, liquified natural gas, and coal to the United States, as part of a plan to cut Russia off from the world economy.

Biden did this under pressure from Congress, which was preparing its own bill for this outcome. The administration hesitated to take this step independently from other allies and partners. In 2021, the U.S. imported only 3% of its oil from Russia, and that number has been dropping in 2022, while Europe is not in a position to cut off Russian oil, although the European Union did offer a plan to cut Russian gas imports by two thirds this year, and Britain declared it would stop importing Russian oil in 2023.

According to a new Reuters poll, 63% of Americans approve of cutting off Russian oil despite expected price hikes. Still, rising gasoline prices are a big problem, and the optics of cutting off any oil supplies right now will hurt the administration.

The government has little to do with the cost of gasoline. Since our oil companies are privately owned, the cost of oil goes up and down according to supply and demand. That, in turn, can depend on disruptions to crude oil supplies, refinery operations, or pipeline problems, or even on what people think will be future demands. Last year, in the midst of the pandemic, the economic recession meant there was little demand for oil, and prices were very low. That meant producers reduced production, and they have not yet fully ramped it up again.

Even before Russia invaded Ukraine, the booming U.S. economy meant increased demand for oil and thus increased prices. U.S. companies increased their production, but perhaps not enough to address the imbalance between supply and demand that would address soaring gasoline prices. And in that gap, oil companies made huge profits.

On February 20, 2022, Tom Wilson of Financial Times reported that the seven top oil companies, including BP, Shell, ExxonMobil, and Chevron, would return a near-record $38 to $41 billion to shareholders through stock buybacks, after distributing $50 billion in dividends. The Wall Street Journal in January noted, “While that is good for investors in the company, there are mounting concerns that there isn’t enough investment in new fossil-fuel supply to meet growing demand.”

Low supplies are driving prices up, but Republicans are trying to turn those high gas prices into a culture war, blaming Biden’s cancellation of the Keystone XL pipeline for the nation’s high gas prices. Representative Jake LaTurner (R-KS), for example, has launched a paid ad on Facebook and Twitter saying that the Keystone XL pipeline “would have produced 830,000 barrels of oil per day, more than enough to offset what we import from Russia.” Others blame Biden’s cancellation of new oil permits in the Arctic National Wildlife Refuge for high prices.

In fact, both of these points are misleading.

The Keystone Pipeline, which runs from oil sand fields in Alberta, Canada, into the United States and to Cushing, Oklahoma, exists and is fully operational. The XL Pipeline consists of two new additions to the original pipeline, together adding up to 1700 new miles. One addition was designed to connect Cushing to oil refineries in Texas, on the Gulf Coast. That section was built and went into operation in January 2017.

The second extension is the one that caused such a fuss. It was to carry crude oil from Alberta to Kansas, traveling through Montana and North Dakota, where it would pick up U.S. crude oil to deliver it to the Gulf Coast of Texas. (This would have had the effect of raising oil prices in the middle of the country.) This leg crossed an international border, and thus the Canadian company building it needed approval from the State Department. The proposed pipeline would threaten water supplies in the Northwest if it leaked, for it would run over a huge aquifer, and the people who lived downstream from the proposed route, including Lakotas and members of other Indigenous tribes, protested the pipeline’s construction.

The Trump administration approved this construction, and the opposition of environmentalists, Indigenous Americans, and Democrats to the pipeline enabled Republicans to turn it into a cultural symbol, suggesting that the opposition of these groups was hobbling the economy. In fact, the company behind the project was Canadian and wanted the extension to shorten transportation routes for its oil. The winners on the American side were the refinery owners; the jobs the project would create were primarily in the construction of the project.

As soon as he took office, Biden halted the construction. But Blaming today’s high prices on the cancellation of this spur of the Keystone Pipeline is a resort to that culture war. Even if Biden had not overturned Trump’s approval of the project, it would not be completed yet, and even if it were completed, there is no guarantee that it would have delivered more oil to the U.S., rather than to the ports for export elsewhere. The U.S. exports about half of its oil production to other countries, both because the crude we produce is hard for us to refine and because of the demand for it overseas. The Keystone pipeline was designed for export.

The argument that Biden’s cancellation of new oil drilling leases on public property has driven prices up is similarly misleading. On November 17, 2020, after he lost the election, former president Trump abruptly allowed oil and gas companies to pick out land for drilling rights on about 1.6 million acres of Alaska’s Arctic National Wildlife Refuge. Biden froze those permits as soon as he took office. Only about 10% of drilling takes place on public land, and there are currently about 9000 permits already issued that have not been developed.

But oil drilling on public land returns huge sums of money to the states in whose boundaries the drilling occurs; at the hearing for the confirmation of Interior Secretary Deb Haaland, Senator John Barrasso (R-WY), the top Republican on the Senate Energy and Natural Resources Committee, said that his state collects more than a billion dollars a year in royalties and taxes from the oil, gas, and coal produced on federal lands in the state, and warned that the Biden administration’s opposition to oil permits is “taking a sledgehammer to Western states’ economies.”

Oil prices are skyrocketing because of the dislocation of the pandemic, the Russian invasion, and the disinclination of countries to buy from Russia, even though oil sales have not yet been sanctioned.

To combat those prices, the Biden administration asked Saudi Arabia to increase production; the Saudis declined. On Saturday, U.S. officials met Venezuelan president Nicolas Maduro, who has run a brutal regime, is accused of human rights violations, and is aligned with Russian president Vladimir Putin. Venezuelan oil has been under U.S. sanctions since 2019, and with Russian assets frozen, Maduro needs financial support, while the U.S. and its allies need oil. After Saturday’s talks, the Venezuela government released two of six U.S. citizens from custody, apparently as a gesture of goodwill as talks go forward.

For all the fighting over oil, Biden pointed out today that we have an interest in stopping Putin’s aggression, and that the best way to reduce the price of oil is to shift to renewable energy. “[T]ransforming our economy to run on [electric vehicles], powered by clean energy, will mean that in the future, no one has to worry about gas prices.”

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Notes:

https://www.gov.pl/web/diplomacy/statement-of-the-minister-of-foreign-affairs-of-the-republic-of-poland-in-connection-with-the-statement-by-the-us-secretary-of-state-on-providing-airplanes-to-ukraine

https://www.reuters.com/world/us/four-five-americans-support-end-us-imports-russian-energy-reutersipsos-2022-03-08/

https://www.bloomberg.com/news/articles/2022-03-08/biden-says-u-s-will-ban-russian-fuels-to-pressure-putin-on-war

https://www.ft.com/content/2852b800-4a03-4cf6-a47f-65c306a22657

https://www.wsj.com/articles/chevron-rakes-in-15-6-billion-in-annual-profits-as-oil-prices-climb-11643370301

https://www.eia.gov/energyexplained/gasoline/price-fluctuations.php#:~:text=Gasoline%20prices%20generally%20follow%20crude%20oil%20prices.&text=Gasoline%20prices%20tend%20to%20increase,expected%20gasoline%20demand%20or%20consumption.

https://stateimpact.npr.org/texas/tag/keystone-xl-pipeline/

https://www.politifact.com/factchecks/2022/feb/28/jake-laturner/keystone-wouldnt-simply-offset-oil-us-imports-russ/