Canadian and American Energy Security is an Answer to Global Threats

by | Apr 10, 2022 |

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In an increasingly interdependent world economy, it may be foolish to think that any country can completely insulate itself from global security or trade problems. There are, however, ways to establish and grow energy relations with other countries that can reduce the risks and build resilience to unwanted change. One of these is to reinforce the existing ⏤ but increasingly threatened energy relationship between the United States and Canada.

In the wake of Russias invasion of Ukraine, which began on Feb. 24, the United States and Canada have joined with other countries in imposing severe economic sanctions on the Russian Federation. These have included halting the imports of Russian oil to the United States, which totaled 540,000 barrels per day in 2020, or about six percent of US oil imports. As the world oil market reacts to these events, and the prices of refined oil products like gasoline hit consumers at the pumps, the western worlds attention is returning to an issue that many had forgotten ⏤ energy security. 

The Magnitude of the Canada and US Trade Relationship

The size of the existing trade relationship would probably come as a surprise to many Americans. Canada is the United Statesthird-largest trading partner, with a combined value of imports and exports of about $50 billion annually, behind only China at $56 billion and Mexico at $53 billion. Canada is the largest market for US exports of goods and services, more significant than the entire European Union. US imports of Canadian energy are especially prominent. Canadian-produced crude oil constitutes 23% of US crude oil consumption and is the largest source of oil imports. Canada meets one-fifth of American uranium needs, and almost one-tenth of its natural gas consumption. Canada and Texas compete in terms of which jurisdiction will meet the largest share of US oil demand.

The interdependence, and the benefits, go both ways. From Canadas perspective, the importance of the US as a market for Canadian energy exports could hardly be exaggerated. The United States purchases 81% of Canadas crude oil production, 57% of its uranium production, 45% of its natural gas production, and 8% of its electricity production.

Canada’s Oil Resources

Large as it is, the magnitude of the two-way trade could be far larger still, based on the size of the Canadian resource base, especially in oil. 

Note that Canada has a far higher share of the world’s proven oil reserves than is generally recognized. The United States, in contrast, has only one-twenty-fifth of the world’s proven reserves. The combined oil reserves of Canada and the United States would exceed those of any other region except the Middle East.

The limits on Canadian oil production and sales do not arise from geology ⏤ but from politics. The capacity of Canadas export pipeline system has risen only slightly over the last six years and now totals 4.26 million barrels per day. The Canadian petroleum industry has been trying to get approval for major new pipelines for over twelve years.

Constraints on Increased Transportation and Trade – Canada

Each proposal has been blocked either by Canadian federal government policy that creates regulatory barriers to new construction as an element of climate policy or by the success of court challenges from environmental and indigenous groups, almost all of whom are heavily funded by the federal and provincial governments. Proposals to add major new oil sands plants to increase production have suffered the same fate, as have proposed projects to build liquified natural gas facilities on the Pacific Coast to access Pacific markets. 

The canceled pipeline projects include the Northern Gateway Pipeline. That project went through four and a half years of regulatory review before it was canceled when the government led by Justin Trudeau declared a ban on oil tanker traffic off the north coast of British Columbia, based on no evaluation of the actual risks. The result was $7.9 billion in foregone capital expenditure and $30 billion in GDP. The Energy East Pipeline Project would have transported crude oil from western Canada to the east coast so that it could access US east coast markets and those in Europe.

Almost four years into the review, the Trudeau government changed the rules. It instructed the National Energy Board that was reviewing the project that it had to take evidence on the upstream and downstream carbon dioxide emissions caused by consumption of the oil the pipeline would transport. This made it obvious to the pipeline sponsor that the project would not be approved even after the regulatory review was completed. The cancellation of the Energy East Pipeline Project resulted in $7.9 billion in foregone capital expenditures, and $35 billion foregone in GDP. 

The Teck Frontier Oil Sands Mine was a major new production facility in Alberta that underwent eight years of regulatory review. It would have involved $20.6 billion in capital expenditures and yielded $70 billion in government revenues over the life of the mine. It, too, was canceled due to uncertainty about the effect of climate policies hostile to hydrocarbons development.

This does not include the billions of dollars in foregone capital expenditures on the west coast LNG terminals that have been canceled due to delays and environmental and aboriginal opposition ⏤ to the $28 billion Aurora project, the $16 billion Prince Rupert project, and the $25 billion WCC project. 

Over the 2014 to 2018 period, the result was that there was insufficient capacity to transport Canadian heavy crude to market. As a result, they were subject to heavy discounting in the mid-continent markets they could reach. Canadian oil producersrevenues were reduced by an estimated $40 billion due to discounted heavy crude.

It may be difficult to believe that these two strong nations working in concert to enhance their benefits from the development and use of their oil resources could turn to crazy leadership intent on destroying their once-great energy economies. But it is quite true. It is no accident or unintentional result. It results from the two nations being led by people intent on destroying the economies they once enjoyed. Sad!

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Robert Lyman is an economist who spent 38 years working for the Canadian government.

Dr. Jay Lehr is a Senior Policy Analyst with the International Climate Science Coalition and former Science Director of The Heartland Institute.

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