Did the Keystone XL Cancellation Cause High Gas Prices? What the Data Shows

In the political arena, few decisions have generated as much enduring debate over energy policy as the cancellation of the Keystone XL pipeline. On January 20, 2021, his first day in office, President Biden signed an executive order revoking the presidential permit for the border-crossing pipeline. In the months that followed, as retail gasoline prices climbed to record-breaking levels across the United States, conservative commentators and political opponents pointed to this decision as the primary catalyst for inflation at the pump. Even as the Trump administration in 2026 calls for a revival of pipeline construction to ensure "energy dominance," the claim that canceling Keystone XL caused the 2021–2022 gasoline spike remains a cornerstone of political debates. To determine whether the data supports this claim, it is necessary to examine the physical reality of the pipeline's status, the global mechanisms that dictate retail gasoline prices, and how Canadian crude oil has actually flowed to the United States.

A Brief History and Timeline of Keystone XL

Understanding why the pipeline's cancellation did not affect immediate pump prices requires looking at its long and fraught planning history. Proposed in 2008 by TransCanada (now TC Energy), the Keystone XL pipeline was designed to be a 1,210-mile shortcut in the existing Keystone pipeline network. It aimed to transport up to 830,000 barrels per day of heavy crude oil (diluted bitumen) from the oil sands of Hardisty, Alberta, to Steele City, Nebraska, where it would connect with existing pipelines running to U.S. Gulf Coast refineries [5].

However, the project was repeatedly delayed by environmental reviews, legal challenges, and shifting executive administrations. The pipeline never entered commercial service before its termination in 2021.

What Actually Drives Gas Prices?

Energy economists emphasize that gasoline is a refined product derived from crude oil, which is traded on a highly integrated global market. According to the U.S. Energy Information Administration (EIA), the price of crude oil accounts for approximately 55% to 60% of the cost of retail gasoline at any given time. The rest is determined by refining costs (crude-to-gasoline margins), distribution and marketing, and state and federal taxes.

Retail gas prices rose between 2021 and 2022 because global crude oil prices surged. When the global economy shut down during the COVID-19 pandemic in 2020, energy demand plummeted. In response, oil producers worldwide—including U.S. shale companies and OPEC+ nations—shut down active wells, postponed drilling, and slashed capital investments. In April 2020, U.S. gasoline prices fell to a monthly average of $1.84 per gallon [4].

When vaccines rolled out in 2021 and travel resumed, demand rebounded far faster than the oil industry could restore production, leading to a global supply deficit. This structural imbalance was severely exacerbated in February 2022 when Russia invaded Ukraine. Global sanctions on Russian oil disrupted supply chains, sending Brent crude oil prices soaring above $120 per barrel. Because oil is a global commodity, U.S. gasoline prices tracked this global spike, peaking at an all-time record average of $4.93 per gallon in June 2022 [4].

The Refinery Capacity Bottleneck

Even if the U.S. had possessed more crude oil in 2021 and 2022, it would have run into a severe domestic refining bottleneck. Crude oil cannot be pumped directly into vehicle engines; it must first be processed at petroleum refineries. During the pandemic, U.S. refining capacity contracted significantly due to closures, damage, and business pivots.

According to EIA Refinery Capacity Reports, the U.S. lost over 1 million barrels per day of operable refining capacity between 2020 and 2022, dropping from 18.98 million barrels per calendar day (b/cd) to 17.94 million b/cd [3]. Key closures included the Convent refinery in Louisiana and the conversion of facilities like Marathon’s Martinez refinery in California to renewable fuel production.

This drop in processing capacity meant that domestic refineries were operating at near-maximum utilization rates during the summer of 2022. Even if Keystone XL had been operational and delivering more Canadian crude to the Midwest or Gulf Coast, U.S. refiners could not have processed it into gasoline any faster. This physical capacity limit drove up the "crack spread"—the profit margin refiners make converting crude to fuel—further inflating retail prices independent of crude supply.

U.S. Oil Production and Canadian Imports Reach Record Highs

A central premise of the pipeline debate is that canceling Keystone XL hampered North American oil supply. However, energy market data reveals that both U.S. crude oil production and U.S. imports of Canadian crude oil climbed to all-time record highs in the years following the cancellation.

According to the EIA, U.S. crude oil production recovered from its pandemic drop to reach an annual average of 12.93 million barrels per day (bpd) in 2023, 13.21 million bpd in 2024, and 13.58 million bpd in 2025 [2]. The U.S. remains the largest crude oil producer in the world, outperforming both Saudi Arabia and Russia.

Furthermore, the flow of Canadian crude oil into the U.S. was not cut off. Instead, U.S. imports of Canadian crude rose to a record monthly high of 4.3 million bpd [6]. Without Keystone XL, midstream energy companies expanded and optimized alternative routes:

• Enbridge Line 3 Replacement: Completed in October 2021, this project replaced an aging pipeline and restored full operational capacity, increasing the flow of Canadian heavy crude to the U.S. Midwest from 390,000 bpd to 760,000 bpd (a net increase of 370,000 bpd).
• Pipeline System Optimizations: Operators utilized drag-reducing agents and minor system expansions on existing networks (such as the original Keystone pipeline, which continues to carry 590,000 bpd) to maximize throughput.
• Trans Mountain Expansion (TMX): Completed in May 2024 in Canada, the TMX pipeline carries crude from Alberta to the Pacific Coast, allowing tankers to deliver record volumes of Canadian crude directly to U.S. West Coast refineries in California and Washington.

Nuance: What are the Arguments for the Pipeline?

While the data indicates that revoking the Keystone XL permit did not drive the retail price spikes of 2021–2022, a complete economic analysis must acknowledge the valid arguments raised by the project's proponents.

First, pipelines are the most cost-effective, energy-efficient, and safest method of transporting crude oil over land. In the absence of Keystone XL, some Canadian crude was moved via rail and barge. Shipping oil by rail is significantly more expensive per barrel and carries a higher risk of spills and accidents. While the transportation cost difference only translates to a fraction of a cent per gallon of retail gasoline, the lack of a direct, high-capacity pipeline slightly reduced the overall efficiency of the midstream supply chain.

Second, U.S. Gulf Coast refineries are highly sophisticated and specifically configured to process heavy, sour crude oil, which is the type produced in Canadian oil sands. Because domestic U.S. shale production yields light, sweet crude, Gulf Coast refiners must import heavy oil. Historically, they relied on Mexico and Venezuela. With Venezuelan production depressed by political instability and Mexican exports declining, refiners benefit from a stable, long-term supply of Canadian heavy crude. Proponents argue that Keystone XL would have provided a secure, direct conduit to the Gulf, reducing dependence on volatile overseas regimes.

Finally, the cancellation carried immediate local economic costs. TC Energy had projected that the construction of Keystone XL would create roughly 10,000 temporary union construction jobs over its build period. Its cancellation resulted in immediate layoffs for local crews, write-downs for TC Energy, and a loss of over $1 billion for the provincial government of Alberta, which had financially backed the project. Once operational, however, the pipeline would have only required 35 to 50 permanent staff to maintain.

Conclusion

Ultimately, the claim that the cancellation of the Keystone XL pipeline caused the rise in U.S. gasoline prices is unsupported by global energy market data. Because the pipeline was only 8% complete and years away from operational service when its permit was revoked, its cancellation did not remove a single barrel of crude oil from the market. The high gas prices of 2021–2022 were driven by global factors: a post-pandemic demand shock, OPEC+ output limits, a domestic refining capacity shortage, and the war in Ukraine. Furthermore, North American energy production and Canadian imports reached historic highs without the pipeline.

While Keystone XL would have provided a more direct and cost-effective route for Canadian crude to reach Gulf Coast refineries over the long term, its absence did not choke off supply. The market adapted by utilizing alternative pipelines and transport methods. The debate over Keystone XL remains a powerful political symbol of the tension between fossil fuel development and climate policy, but its cancellation plays no role in the economics of the 2021–2022 inflation spike at the pump.