EDITOR'S NOTE: The global energy crisis triggered by the Russia-Ukraine war and the recent OPEC+ decision is beyond the control of governments. Its effect on energy prices is beyond the control of central banks. But there was a time when policy decisions could have mitigated this risk, preventing it from becoming a full-scale crisis, at least here in the US. The KeystoneXL pipeline, had it been completed, would have made America less vulnerable to Russia’s and OPEC’s actions. But Biden put an end to it in 2021. And now we’re facing the severe consequences of the misguided actions that the current White House administration has implemented to unwittingly weaken the nation.
- KeystoneXL could’ve weakened the bargaining position of OPEC and Russia this year.
- The U.S. would be less vulnerable to OPEC supply cuts and price swings if KeystoneXL would’ve been completed.
- The U.S. can’t afford to have policies that are hostile to North American energy companies
The U.S. is rapidly depleting our Strategic Petroleum Reserve (SPR) and is now begging Saudi Arabia and OPEC not to cut oil production. This is a result of the unintended — but predictable — consequences of U.S. energy policy that is often hostile to our domestic energy companies. Our energy policy is often undermined by well-meaning but naïve people. They fought for years against the on-again, off-again Keystone XL pipeline, which was ultimately canceled by the Biden Administration.
The cancellation of the Keystone XL pipeline was naïve because of the belief that by canceling it, the oil wouldn’t be developed and it would help in the fight against climate change. Meanwhile, alternatives would come to the rescue, rendering the pipeline completely unnecessary.
I understand why people made that argument. It seems intuitively correct. But, that is not how the world works.
The reality is that if oil demand was still there when Keystone XL could have delivered oil from our friendly neighbor to the north, that would have added to global oil supplies. It would have transported oil from Canada and from the Bakken Formation in the U.S. It would have moved more oil than we get from either Russia or Saudi Arabia — and nearly as much oil as we got from OPEC last year.
That means it would have weakened the bargaining position of OPEC and Russia when it came to withholding oil from the market (or in Russia’s case, sanctioning them).
If not for all the holdups on the pipeline extending back to the Obama Administration, the pipeline expansion would probably have been completed by about now. It wouldn’t have solved the issues with Saudi and Russia, but it would have reduced their power.
Some have misread my support of the Keystone XL pipeline. This has nothing to do with a desire to keep us addicted to petroleum. To the contrary, I want to see that addiction end.
My thoughts on the pipeline were to build it, and if the demand is still there when it comes online, we will have increased our access to a safer, more secure source of petroleum. Let a private company risk billions of dollars to build the pipeline, creating many jobs in the process. At the same time, we should work hard to ensure that we don’t need it.
We can’t afford to have policies that our hostile to North American energy companies. Such policies will hurt development here, and if oil demand doesn’t phase out as quickly as anticipated, then it puts us in the position we are in now: Draining our Strategic Petroleum Reserve in an attempt to control prices, while begging Saudi Arabia and OPEC to produce more oil.
If nothing else, look at the support of our domestic energy production as an insurance policy against being held hostage by foreign producers whose interests do not align with those of the U.S.
By Robert Rapier
Originally published on Oil Price.