The Foolishness of the Keystone XL Pipeline Cancellation Revealed As China Becomes A Big Buyer of Canadian Oil

Guest Post from the Institute for Energy Research.

China has overtaken the United States as the top oil purchaser from the Trans Mountain pipeline, displacing it in its quest to diversify supplies amid the trade war and U.S. sanctions on oil from Russia and Venezuela. The Trans Mountain pipeline carries oil to the Pacific Coast, where it can be loaded onto tankers for export, opening up markets for Canadian oil along the U.S. West Coast and in Asia. The pipeline expansion was completed after Biden withdrew the presidential permit for the Keystone XL pipeline upon taking office.

The expanded Trans Mountain pipeline began operating on May 1, 2024, with its capacity tripled to 890,000 barrels per day, comparable to that of the Keystone XL pipeline. Before that, the U.S. Midwest was the major market for Canadian oil, importing 90%, around 4 million barrels per day, of Canada’s oil via North-South pipelines from its main oil-producing region of Alberta.

China upped its shipments via the Trans Mountain pipeline to an average of 207,000 barrels per day since June of last year — a huge increase from an average of 7,000 barrels per day in the decade to 2023. During the same period, U.S. shipments from the pipeline totaled about 173,000 barrels per day.

Other nations purchasing Canadian oil include South Korea, Japan, India, Brunei, and Taiwan. In the year since the pipeline’s expansion, Canadian exports of oil to countries other than the United States increased almost 60% to an annual record of about 183,000 barrels per day in 2024.

In 2024, Trans Mountain was about 77% full — below the company’s forecast of 83% — partly due to the high tolls the operator has charged to make up for the cost of construction overruns. The pipeline is expected to be 84% full this year and 92% full in 2027. Trans Mountain Corp, the pipeline’s operator, is looking at additional expansion projects that could add between 200,000 and 300,000 barrels per day of capacity, most of which is likely to go to Asia rather than the U.S. West Coast.

Trans Mountain is owned by the Canadian government and cost $24.4 billion to build in order to get oil from land-locked Alberta to markets other than the United States. Canada is the world’s fourth-largest oil producer, and the largest source of oil imports for the United States.

Biden Cancels Keystone XL Pipeline’s Presidential Permit

President Biden canceled the Keystone XL pipeline permit on his first day in office in January 2021, despite the pipeline being completed at the border. The pipeline operator tried to have Biden reverse his decision by offering to make the pipeline’s operation carbon free by 2023 through the funding of emissions-reduction projects and vowing to hire a union workforce — which involved reaching a deal with four labor unions to build the line.

The operator also promised to acquire renewable power for the entire network totaling $1.7 billion on solar, wind, and battery power by 2030, and reached an agreement with five indigenous tribes to take a $785 million ownership stake. The operator also noted that technological advances had resulted in a decline in greenhouse gas emissions per barrel of oil sands by 30% since 1990.

Biden did not reverse his withdrawal of the presidential permit as he was not moved by the thousands of U.S. jobs that were lost, or the argument that less safe and more expensive movement by rail and truck would be used to bring Canadian oil into the U.S. Midwest instead.

The Keystone XL project was under construction at the time of Biden’s withdrawal of the permit, employing more than 1,500 workers. It was projected to provide approximately 11,000 high-paying jobs in 2021. Most of these jobs were to go to unionized workers, many of whom would have belonged to America’s leading labor unions. These union workers were expected to earn approximately $800 million in wages.

The contribution of the pipeline to global warming was expected to be infinitesimal. The total greenhouse gas emissions from transporting 830,000 barrels per day of Canadian oil by pipeline would be about 150 million metric tons per year, or about 0.3%of the world total. Applying the EPA climate model using the least favorable set of assumptions resulted in a global temperature effect of about four ten-thousandths of a degree Celsius by 2100.

Keystone XL construction would also have generated significant spending and revenue at the local level, with hundreds of millions of dollars allocated to small businesses and substantial tax revenue increases for local schools and public safety. Rural areas in the country would have been able to invest in new schools, new roads, and other public works projects that would have brought a higher standard of living.

Biden may have pleased environmentalists in the United States, but his efforts did not otherwise succeed as Canadian oil is still being produced in Alberta and shipped via the Trans Mountain pipeline.

Conclusion

China has become the top buyer of Canadian oil via the Trans Mountain pipeline, pushing the United States into the second position, as China looks to diversify its oil imports due to the trade war and U.S. sanctions on Russian and Venezuelan oil.

China now imports 207,000 barrels per day of Canadian oil — a huge increase from an average of 7,000 barrels per day in the decade to 2023, compared to U.S. shipments from the pipeline totaling about 173,000 barrels per day.

Additional expansion projects could add between 200,000 and 300,000 barrels per day of oil capacity to the pipeline, with most of this capacity likely to be allocated to Asia rather than the U.S. West Coast.

The story of Trans Mountain and the cancelled Keystone XL offers insight into the importance of transportation routes for energy and their significance for economic, national, and energy security.

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