Canada is the Best Source for American Oil Imports

by | Apr 20, 2022 |

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The Russian invasion of Ukraine has made most western European countries much more aware of their vulnerability to the geopolitical and economic risks of energy supply disruption. They are also realizing, the hard way, that they must reduce that vulnerability as soon as possible. While there are several immediate measures underway, it will take several years, if not decades, to reduce the high level of European dependence on Russia for natural gas and oil supplies. North America’s diversion of oil and liquified natural gas (LNG) supplies to Europe is not fundamentally changing the global supply/demand situation. It is, however, throwing into sharper relief the foolishness of U.S. and Canadian policies that hamper energy infrastructure development. 

The reaction of European elites who seek to tie increased energy security to accelerated decarbonization would be comical were it not so threatening to the well-being of their citizens. The EU produces only 9% of the global greenhouse gas (GHG) emissions, a share that is declining every year and will make little impact on the growth in global emissions, which is, of course, driven by Asia, with China now emitting over twice that of America.

The alleged “urgency” of emissions reduction rests upon the thesis that a global climate emergency exists, which even the alarmist Intergovernmental Panel on Climate Change (IPCC) does not claim in their most recent reports.” Yet, Europe now spends over 20% of its GDP on climate policy measures, an astonishing waste of precious taxpayer funds.

After almost 20 years of such massive spending, hydrocarbons still constitute 55% of primary energy consumption (oil, 26%; gas, 19%; coal, 9%), and renewables constitute only 9%. Short of a massive, costly, and dangerous attempt to electrify the entire economy, renewables are not substitutes for oil and natural gas in housing, commerce, and transportation. The barriers to electrification are as great or greater in Europe than they are in North America.

In March 2022, the United States and Canada joined with other countries in imposing severe economic sanctions on the Russian Federation. These have included halting the imports of Russian oil to the U.S., which totaled 540,000 barrels per day in 2020, or about six percent of our 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 world’s attention is returning to an issue that many had forgotten – energy security. 

In an increasingly interdependent world economy, it is 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 America and our closest ally Canada.

The Magnitude of the Canada-U.S. Trade Relationship

The size of the existing trade relationship would probably come as a surprise to many Americans. Canada is our third-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 U.S. exports of goods and services, larger than that of the entire European Union. U.S. 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 U.S. oil demand.

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

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. 

Table 1 shows proven oil reserves by country at the end of 2020.

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. 

Constraints on Increased Transportation and Trade – Canada

The limits on Canadian oil production and sales do not arise from geology, but from politics. The capacity of Canada’s 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, but 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. 

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 Prime Minister 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 U.S. 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 that would be 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. 

It may be difficult to believe that these two strong nations, working in concert to enhance the benefits from the development and use of their oil resources, could turn to leaders who are apparently intent on destroying their own nations’ economies. They clearly fear climate alarmists more than they fear leaving their citizens hungry and freezing in the dark. We must not let them get away with it.

Robert Lyman, an economist who worked for 38 years with the Canadian government before it turned hard left, will be our guest on The Other Side of the Story on Saturday and Sunday, April 23 and 24 at 11 am and 8 pm Eastern Time to discuss this dangerous situation.

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Dr. Jay Lehr is a Senior Policy Analyst with the International Climate Science Coalition and former Science Director of The Heartland Institute. He is an internationally renowned scientist, author, and speaker who has testified before Congress on dozens of occasions on environmental issues and consulted with nearly every agency of the national government and many foreign countries. After graduating from Princeton University at the age of 20 with a degree in Geological Engineering, he received the nation’s first Ph.D. in Groundwater Hydrology from the University of Arizona. He later became executive director of the National Association of Groundwater Scientists and Engineers.

Tom Harris is Executive Director of the Ottawa, Canada-based International Climate Science Coalition, and a policy advisor to The Heartland Institute. He has 40 years experience as a mechanical engineer/project manager, science and technology communications professional, technical trainer, and S&T advisor to a former Opposition Senior Environment Critic in Canada’s Parliament.

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