America’s Energy Bottlenecks: The Impact of Keystone XL, Refinery Closures and Fracking Restrictions

America’s energy security depends on more than how much oil lies underground. It also depends on the ability to extract it, transport it, refine it and deliver usable fuel to consumers. Weakness at any stage can affect household budgets, business costs and the country’s ability to withstand supply disruptions.

The cancellation of Keystone XL, closures of American refineries and restrictions on hydraulic fracturing affect different parts of that system. Each deserves scrutiny, but their consequences must be assessed separately.

One essential clarification: the United States does not have a nationwide ban on fracking. Restrictions exist in certain jurisdictions, while hydraulic fracturing remains central to American oil and natural-gas development. A national ban is therefore a hypothetical policy scenario, distinct from existing regional prohibitions. 123

Keystone XL: A Lost Transportation Opportunity

Keystone XL would have added capacity to move up to 830,000 barrels of crude oil per day from western Canada and the U.S. Bakken region into a pipeline network serving Gulf Coast refineries. President Joe Biden revoked its cross-border permit in January 2021, and TC Energy terminated the project that June. The cancellation concerned the proposed XL extension; it did not shut down the existing Keystone pipeline system. 45

Its potential value was partly a matter of matching crude oil with the refineries equipped to process it. Many American refineries can handle heavy Canadian oil, while much of the growth in domestic production has involved lighter crude. EIA reports that Canadian crude supplied approximately 24% of U.S. refinery throughput in 2023. Imports from Canada can therefore complement domestic production rather than simply replace it. 6

From an energy-security perspective, an additional connection to a neighboring supplier could have provided transportation flexibility. Cancellation also eliminated the remaining construction work and associated spending that completion would have generated.

However, the proposed pipeline’s capacity cannot be treated as 830,000 barrels of newly produced oil every day. Some shipments could have moved through other routes, and actual flows would have depended on production, demand and commercial decisions.

Nor does the evidence establish that completing Keystone XL would have produced a large, predictable reduction in gasoline prices. A December 2022 Department of Energy review found the consumer-price impact inconclusive and emphasized differences among the studies’ assumptions. It also distinguished temporary construction employment from the much smaller permanent operating workforce. 4

The strongest case for Keystone XL was additional infrastructure and supply flexibility. Claims that its completion alone would have solved America’s fuel-price problems go beyond the available evidence.

Refinery Closures: A More Direct Fuel-Supply Constraint

Refineries turn crude oil into gasoline, diesel, jet fuel and other products. Losing refining capacity can constrain finished-fuel supplies even when crude oil remains available.

According to EIA, U.S. operable crude-distillation capacity stood at approximately 18.2 million barrels per calendar day on January 1, 2026, down more than 250,000 barrels per day from a year earlier. LyondellBasell’s Houston refinery and Phillips 66’s Los Angeles refinery closed during 2025. Their combined loss of roughly 400,000 barrels per day was partly offset by increases elsewhere. EIA subsequently removed Valero’s Benicia refinery from its monthly capacity estimates in March 2026 after refining operations ceased. 7

Location matters. The Gulf Coast has extensive refining infrastructure and produces more fuel than the region consumes. The West Coast has relatively limited pipeline access to those supplies, making local refinery losses harder to replace quickly. EIA identifies that isolation as a reason closures can have a greater effect on West Coast fuel availability. 7

Reduced capacity can leave a market more exposed to maintenance shutdowns, equipment failures or sudden increases in demand. Imports and inventories can help, but they do not always replace lost production immediately. EIA has specifically warned that West Coast closures increase the risk of gasoline-price volatility. 8

For consumers, that means greater vulnerability to price spikes. For businesses, more expensive diesel or gasoline can raise transportation and operating costs, creating pressure to increase prices or accept smaller margins.

Still, refinery closures do not guarantee continuously rising pump prices. Crude-oil costs, taxes, distribution expenses and refining margins all contribute to the final price. A decline in crude prices can offset some pressure from reduced refining capacity. 9

Fracking Restrictions: Regional Effects and National Stakes

Hydraulic fracturing, commonly paired with horizontal drilling, has enabled producers to recover oil and natural gas from formations that were previously difficult to develop economically. EIA identifies that combination as a major driver of increased U.S. production. 2

Existing bans have a defined geographic scope. For example, the Delaware River Basin Commission prohibited high-volume hydraulic fracturing within the basin in 2021. That restriction does not extend to all of Pennsylvania or the entire United States. 3

A nationwide ban on new hydraulic fracturing would present much larger supply risks. Existing wells lose production over time, and new wells are needed to offset those declines. EIA’s analysis shows that rapid declines from horizontal wells make continued development particularly important to sustaining output. 10

The resulting economic effects would depend on the ban’s scope and timing. A prohibition on new well completions would have different immediate consequences from a policy affecting existing production. Replacement imports, other energy sources, efficiency improvements and changes in demand would also influence the outcome.

Nevertheless, a reasonable inference is that abruptly restricting a major production method before alternatives are available would put upward pressure on energy costs and increase reliance on replacement supplies. Natural-gas shortages could affect heating, electricity generation and industrial users; reduced oil output could increase exposure to international markets. A 2021 Department of Energy scenario analysis identified similar risks, although its projections should not be treated as observed outcomes or precise forecasts for today. 11

Environmental Protection Is Part of the Calculation

The economic benefits of energy development must be weighed against its risks. EPA’s final hydraulic-fracturing assessment found that related activities can affect drinking-water resources under some circumstances, including problems involving spills, well integrity and wastewater management. Those findings support enforceable protections and careful decisions about where development occurs. 12

The policy challenge is to protect communities while maintaining reliable energy supplies. Broad restrictions and weak oversight can both impose costs; evaluating them requires attention to local conditions and credible alternatives.

What This Means for the United States

These issues concern three different capabilities: Keystone XL would have expanded transportation, refineries provide fuel processing, and fracking supports production.

Additional crude transportation cannot compensate for insufficient refining capacity. More refineries cannot operate without suitable feedstock. Domestic production cannot reach consumers efficiently without transportation and distribution infrastructure.

A practical American energy policy should evaluate the entire chain. It should weigh infrastructure investments, regional supply vulnerabilities, environmental safeguards and the pace at which replacement technologies can meet demand.

The cost of losing capacity is often reduced flexibility when something goes wrong. Preserving that flexibility—while protecting public health and the environment—is a stronger foundation for energy security than attributing every change in gasoline prices to a single pipeline or policy.

Sources

1 Congressional report

2 EIA, Hydraulically fractured horizontal wells account for most new oil and natural gas wells

3 DRBC, Final Rule, adopted February 25, 2021

4 DOE, December 2022, Keystone XL Extension Permit Revocation: Energy Costs and Job Impacts

5 TC Energy, June 9, 2021

6 EIA, Canada’s crude oil has an increasingly significant role in U.S. refineries

7 EIA, June 29, 2026, U.S. refining capacity decreased during 2025

8 EIA, July 9, 2025, Refinery closures present risk for higher gasoline prices on the West Coast

9 EIA, Factors affecting gasoline prices

10 EIA, November 5, 2025, Rapid declines from horizontal wells require more drilling to sustain production

11 DOE, Economic and National Security Impacts under a Hydraulic Fracturing Ban

12 EPA, Questions and Answers about EPA’s Hydraulic Fracturing Drinking Water Assessment