As we have highlighted before (here
and here), for any commodity-supplying jurisdiction there is a significant risk of being dependent on just one customer, as Canada is with the United States in the case of exports of energy products. This is especially true when your only customer doubles its own production of the relevant commodity over a 10-year period.
The story of rising U.S. energy production amid the growing competitive pressures bearing down on the beleaguered Canadian oil sector is highlighted in a recent International Energy Agency report, Oil 2019, Analysis and forecast to 2024. For a trading nation, it makes sense to know what your competitors are doing. Trade is about knowing your advantages, compensating for your weaknesses, and understanding what your major trading partners are up to.
The second line of the IEA report offers a succinct summary: “The United States is increasingly leading the expansion in global oil supplies.” In fact, in 2018 the United States increased production by 2.2 million barrels per day and by 2021 the forecast is that its crude oil exports will exceed its imports. America’s growing role as a hydrocarbon supplier reflects rapidly increasing production of shale-based oil and natural gas in Texas, New Mexico, North Dakota, Pennsylvania, and a handful of other states. But it takes a long time and much effort to create market conditions that shift a nation from net importer to net exporter. Infrastructure to get product to market is an inescapable necessity, along with a favourable tax and regulatory system that attracts capital, spurs entrepreneurial activity, and recognizes the nuances of competitive advantage.
U.S. crude oil production
1949 to 2018 (000s b/d)
Source: U.S. Energy Information Agency.
“Meanwhile,” the IEA observes, “the production of heavier crude grades is hamstrung by sanctions and production restraints in key producing countries.” The second half of the sentence directly relates to Canada. Our oil industry — the largest component of the country’s energy sector, and a vital source of export earnings – has been constrained by persistent price discounts relative to U.S. benchmarks, escalating government-imposed costs, an ever-more complex regulatory environment, and a paucity of new infrastructure. Canada has handicapped itself with endless navel gazing and hand wringing on environmental performance and the continuous “revitalizing” of project review processes that substitute talk for action and create even more roadblocks to greenfield project development. We recognize that policy-makers are trying to manage legitimate concerns about climate change. But shutting down the Canadian oil industry will do nothing to reduce worldwide greenhouse gas (GHG) emissions or help the global environment — the professed concerns of those seeking to curb Canadian energy production. In fact, if Canada ceased to exist tomorrow, the associated fall in global GHG emissions would be offset by China in less than one month.
Back to infrastructure. For moving oil, pipelines are unquestionably the safest and most efficient method. They also happen to be the main target of often American-funded environmental and Indigenous groups opposed to fossil fuel development in Canada. The irony of this situation, amid skyrocketing U.S. oil and gas production and ramped up American pipeline construction, is stark.
According to the US Department of Transportation’s Pipeline and Hazardous Materials Safety Administration, since 2006 a whopping 63,901 kilometers of crude oil pipelines have been added to the U.S. network. Since 2008, coincidentally the year the Anti-Tar Sands Campaign began, 58,255 kilometers of oil pipelines have been built in the United States. The cross-border contrast becomes apparent when we compare the ratio of Canadian to U.S. crude oil production in barrels per day -- 2008 emerges as a pivotal year, as seen in the figure below.
Ratio of U.S. to Canada crude production
Source: U.S. Energy Information Agency.
Let’s put this in perspective. Canada has added precisely zero kilometers of newly approved large oil pipelines over the same period as the U.S. has vastly expanded its pipeline network. Canadian proposals, including export-oriented Keystone XL, TransMountain, Northern Gateway, and the domestic Energy East, have been mired in endless review processes, fruitless debate, or cancelled.
When the Enbridge Line 3 is completed (now delayed by another year), Canada will have managed to add a bit of replacement pipe along with some expanded capacity, albeit along a different route. Since 2013, the year that Kinder Morgan filed their TransMountain Expansion (TMX) application, the United States has added 35,000 kilometers of new crude oil pipelines. When/if TMX’s expansion is completed, total “new” Canadian crude oil pipelines will be about 5% of the quantum added by the United States in the last decade or so. This is an extraordinary state of affairs given the critical importance of the oil and gas industry to the Canadian economy. Where are the nation-wide campaigns and outraged protestors south of the border? Non-existent, for the most part, and in any case patently unable to thwart the astounding expansion of American fossil fuel production since the middle of the last decade.
Crude oil pipe total by year (kilometers)
Source: U.S. DOT Pipeline and Hazardous Material Safety Administration.
Moreover, the anti-oil sands and anti-pipeline efforts of U.S. and Canadian environmental groups have done absolutely nothing to stop or reverse the growing global demand for oil and oil products, led by countries in Asia and the rest of the developing world. However, they have had success on one count: within the North American oil and gas sector, they have redirected capital, management attention and development activity to the United States, and away from Canada. The bottom line: Canada has suffered, the U.S. has gained, and the global climate is no better off.
 TransCanada Keystone Pipeline was approved before the Anti Tar Sands Campaign as was Enbridge’s Line 67 (Alberta Clipper). The latter is currently seeking regulatory approval for expansion.