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Keystone XL: Why doesn't the US turn to Canada for more oil?

20:08, 4 April 2022

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Protestors of the Keystone XL pipeline in front of the White House
The politically charged Keystone XL pipeline is just one reason why Canada isn't exporting more oil to the US - Photo: Shutterstock.

Industry insiders said even if the Biden administration green-lighted usage of the Keystone XL oil pipeline, it would take months to impact prices and current supply levels.

“You cannot push a button and presto, the market has affordable gas and supply levels are healthy,” said one US oil  executive, who asked for anonymity to speak freely. “It would take several months if not years for [the pipeline] to start pumping oil into the US markets.”

His comments came after the Biden administration went on a television blitz over the weekend defending its earlier decision to cancel the Keystone XL oil pipeline as crude prices remained above $100 a barrel. The executive predicted prices will remain around $100 to $115 a barrel for at least another six months based on current production levels.

National Economic Council Director Brian Deese said the administration is committed to finding ways to deliver lower fuel costs as fast as possible. Deese said releasing one million barrels of oil a day from the Strategic Petroleum Reserve over the next 180 days is a quicker and more environmentally friendly solution than the Keystone XL pipeline.

No supply increase

“Any action on Keystone wouldn’t actually increase supply, and it would transmit oil years in the future,” Deese told CNBC. “What we’re focused on right now is what we can do right now, and... there are wells that are shut in and that can be brought back online over the course of the next couple months. What we need right now is to address the immediate supply disruption.” 

The disruption came days after Russia’s invasion of Ukraine, when the Biden administration embargoed Russian oil and gas imports, stripping more than 700,000 barrels from the US market.

The administration said it could replace Russia’s imports with supplies from Venezuela, Iran and Saudi Arabia, but those plans ran into unexpected issues. 

While prices have inched down since their highest levels since 2008 in early March, futures prices are still much higher than a year ago. West Texas Intermediate May deliveries were trading up more than 4% to $103.34 around 3 p.m. EST (-5UTC) on the New York Mercantile Exchange. Overall, WTI is up 35% in 2022.

Canadian issues

While oil companies and Canada officials are urging that the pipeline receive a permit, behind the scenes some in the industry are being pragmatic about how the proposed 1,200-mile project would affect US oil markets.

Suncor Energy’s (SU) Chief Executive Officer Mark Little said recently that the pipeline could not provide oil to the US for years.

“It was never completed,” he said. “It would literally take years” before oil went from Canada to the US.

Little believes the public in Canada and the US aren't aware of the difference between completing the pipeline and pumping oil through it.

The pipeline runs from Alberta, Canada, east through Manitoba, where it turns south, crossing into North Dakota. It then runs through South Dakota to Nebraska. There it splits with one arm running east through Missouri for deliveries into Illinois. The other arm continues south to Cushing, Oklahoma, and onward to Port Arthur and Houston, Texas.

Both projects are owned by TC Energy Corp. (TRP).

Canada can pump an additional 100,000-200,000 barrels per day into the US market – eventually. But Canada's oil industry doesn’t have the infrastructure right now to immediately increase exports to the US.

“Instantaneously is tough,” Little said. “You need to do something with the facilities.”

Currently, about half of US oil imports come from Canada, Little said, but it would require additional infrastructure, especially pipelines, to increase the country’s exports.

SPR withdrawals

The US executive is wondering if the daily withdrawal of one million barrels from the Strategic Petroleum Reserve is enough to drive down the cost of gas.

Since 2022, the US has subtracted 88 million barrels over three different withdrawals and all failed to soothe the pain at the pump. The executive told Capital.com that more than one million barrels a day is needed for “significantly lower” pump prices given history.

Deese, the National Economic Council director, dismissed any suggestion that dipping into the SPR will actually increase prices, as some analysts and traders have said since Biden's announcement last week.

 

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