One of the hottest talking points regarding the Biden Administration and high gas prices is of course the revocation of the permit for the Keystone XL. This is a debate I have had many times in the last three years, and of course as often is the case many times even experts can’t agree on this. That being said, even experts let their political beliefs get in the way of making logical or rational conclusions.
One bit of historical data that I like to point to is the original Keystone Pipeline and what happened with oil and gas prices after it opened in June of 2010. When phase one of the project opened with a capacity of 860,000 barrels of oil a day, oil was sitting at 71.55 as per historical data from the EIA. For the next 42 months, oil prices did nothing but climb, and oil did not see that low price 71.55 again until December of 2014.
As you can probably guess, since gas prices largely follow the price of oil, they did the same thing. Gas was sitting at 2.78 a gallon on a national average when the pipeline opened and spent the next 42 months on a steady climb, reaching 4.00 a gallon in April of 2012. Just like oil, gas did not see that 2.78 a gallon mark until December of 2014.
Those years had something very similar going on that we had going on in 2020 and up to today. OPEC production cuts. When the global economy crashed near the end of 2008, oil crashed with it, and OPEC decided to cut production by 4.2 million barrels of oil per day. When the economy eventually recovered those oil and gas prices recovered with it, and as they typically do, they enjoyed those higher prices for a few years before they took action to change it.
Just like in late 2008 we had a major crash in 2020 with COVID. That is how the OPEC 2020 deal came about, a massive 10% production cut for two years, negotiated by Donald Trump with OPEC +. Those cuts lasted until May of 2022, and led to the highest gas prices in history for the United States. One thing I find baffling about all of this, is the fact that Joe Biden was the VP during that last huge OPEC cut and witnessed what happened with high oil and gas prices during the Obama administration. Yet still blamed US producers this time around, even though he must know it’s the OPEC cuts driving prices, along with our loss of refining capacity. Even still today OPEC has never fully restored their cuts after COVID, producing roughly three million barrels a day less than they were pre-COVID.
The idea that opening the Keystone XL would have somehow thwarted all of this is simply not true, and I say this as someone who supported the project. I didn’t support it because I thought it would lower gas prices, I supported because it would provide us more energy security from our closest ally. The stoppage of the pipeline did not fundamentally change the supply of oil to the U.S. much less have some impact on global oil prices. This is an argument for politicians and political pundits and American’s who have no understanding of our industry or the complexity of the global oil and gas supply chain.