Canadian Energy Centre
Proposed emissions cap threatens critical Canada-U.S. energy trade
From the Canadian Energy Centre
The vast majority of Canadian oil exports to the United States are processed in Midwest states. Above, the Cushing Terminal near Cushing, Oklahoma is Enbridge’s largest tank farm and the most significant trading hub for North American crude.
Canada and the United States share something that doesn’t exist anywhere else. A vast, interconnected energy network that today produces more oil and gas than any other region – including the Middle East, according to analysis by S&P Global.
It’s a blanket of energy security researchers called “a powerful card to play” in increasingly unstable times.
But, according to two leaders in governance and energy policy, that relationship is at risk.
Analysis has shown that the federal proposal to cap emissions in Canada’s oil and gas sector would result in reduced production. That likely means less energy available to Canada’s largest customer, the United States.
Jamie Tronnes, executive director of the Center for North American Prosperity and Security, is a former Canadian political staffer born in northern Alberta now living in Washington, D.C.
Jamie Tronnes
Heather Exner-Pirot is a prominent energy policy analyst and senior fellow with the Ottawa-based Macdonald-Laurier Institute.
Heather Exner-Pirot
Here’s what they shared with CEC.
CEC: The U.S. is one of the world’s largest oil and gas producers. Why does it need imports from Canada?
HEP: It’s because all oil is not the same. The United States developed its refinery industry before the shale revolution, when they were importing heavier crudes. Canada has that heavier crude. They are now exporting some of their sweet light oil and importing Canadian crude because that’s what their refinery mix requires.
What’s interesting is that we have never exported more Canadian crude to the United States than we are right now. Even as they have become the world’s largest oil producer, they’ve never needed Canadian oil more than today.
They also import a ton of natural gas from us. They have become the world’s biggest gas producer and the world’s biggest gas exporter, but part of that, and having their LNG capacity being able to so quickly surpass Qatar and Australia, is because some of the production is being backfilled by Canada.
CEC: Will the incoming new administration (either Democrat or Republican) impact the Canada-U.S. energy relationship?
JT: I don’t see a big change happening in such a way as it did when the Biden administration came in with the axing of the Keystone XL pipeline. Now that Russia has invaded Ukraine, the global energy market has changed radically.
On the Republican side, Trump often repeats the phrase “drill, baby drill.” The issue is that the U.S. is already drilling about as much as demand allows.
I don’t think a Harris government would move quickly to limit oil and gas production without having a strategic alternative in place. It simply would make her look very weak, and she has explicitly said that she would not ban fracking.
In the post-COVID world, I believe that the Democrat side of the aisle is coming to the view that it was a geopolitical mistake in terms of securing North American energy dominance to cut the Keystone XL pipeline.
The reality is that being able to export refined Canadian feedstock is key to keeping the U.S. as an energy superpower.
The U.S. government continues to offer and subsidize tax credits for investment in carbon capture technology. Even though Trump has said that he would end all of those carbon capture credits and subsidies, it still would not stop the U.S. from importing Canadian oil and gas.
That’s only going to grow as things like AI continue to create more demand for energy. A huge amount of the United States electrical energy grid is powered still by natural gas, and that’s going to take decades to change.
CEC: Would a reduction in Canadian production from the federal government’s proposed oil and gas emissions cap impact the United States?
HEP: Yes, and we should be raising the alarm bells. The federal government has said it is a cap on emissions, not a cap on production, but all the analysis that Alberta and the oil and gas sector have done is that it will create somewhere between 1 million and 2 million barrels of production being shut in.
Well, 95 per cent of our exports are to the United States. If we are shutting in 1 million barrels or 2 million barrels, that all comes out of their end just when their shale oil is expected to plateau and decline.
A cap would also tap down natural gas production and LNG capacity. If you’re Japan or South Korea and you’re looking to secure 20 years of supply, the cap creates a lot of uncertainty with that Canadian supply. There’s zero uncertainty with Qatar’s supply. If you’re Japanese, these are not pleasant conversations. This is not giving you confidence. And if you don’t have confidence in LNG, you’re going to burn coal.
In a perfect world, Canada would supply LNG to Asia, the United States would supply it to Europe, and we’d be a pretty energy-independent Western alliance.
I wish we would be honest that we need a different way to reduce emissions that does not take away from production, because that capacity is a big part of what we offer our allies right now.
JT: It threatens the security of North America in a big way because the energy dominance of the United States is tied to Canada. Especially with what’s going on in Russia and other countries, it behooves us as Canadians and me as an American to remember that security is not freely granted.
We have to make sure that we are thinking more holistically when we think of things like emissions cap legislation that’s going to have knock-on effects and may even increase emissions. If you’re trying to replace that feedstock, it’s got to come from somewhere.
From the Canadian Energy Centre
By Will Gibson
Alberta oil sands projects poised to grow on lower costs, strong reserves
As geopolitical uncertainty ripples through global energy markets, a new report says Alberta’s oil sands sector is positioned to grow thanks to its lower costs.
Enverus Intelligence Research’s annual Oil Sands Play Fundamentals forecasts producers will boost output by 400,000 barrels per day (bbls/d) by the end of this decade through expansions of current operations.
“Existing oil sands projects deliver some of the lowest-breakeven oil in North America at WTI prices lower than $50 U.S. dollars,” said Trevor Rix, a director with the Calgary-based research firm, a subsidiary of Enverus which is headquartered in Texas with operations in Europe and Asia.
Alberta’s oil sands currently produce about 3.4 million bbls/d. Individual companies have disclosed combined proven reserves of about 30 billion barrels, or more than 20 years of current production.
A recent sector-wide reserves analysis by McDaniel & Associates found the oil sands holds about 167 billion barrels of reserves, compared to about 20 billion barrels in Texas.
While trade tensions and sustained oil price declines may marginally slow oil sands growth in the short term, most projects have already had significant capital invested and can withstand some volatility.
Cenovus Energy’s Christina Lake oil sands project. Photo courtesy Cenovus Energy
“While it takes a large amount of out-of-pocket capital to start an oil sands operation, they are very cost effective after that initial investment,” said veteran S&P Global analyst Kevin Birn.
“Optimization,” where companies tweak existing operations for more efficient output, has dominated oil sands growth for the past eight years, he said. These efforts have also resulted in lower cost structures.
“That’s largely shielded the oil sands from some of the inflationary costs we’ve seen in other upstream production,” Birn said.
Added pipeline capacity through expansion of the Trans Mountain system and Enbridge’s Mainline have added an incentive to expand production, Rix said.
The increased production will also spur growth in regions of western Canada, including the Montney and Duvernay, which Enverus analysts previously highlighted as increasingly crucial to meet rising worldwide energy demand.
“Increased oil sands production will see demand increase for condensate, which is used as diluent to ship bitumen by pipeline, which has positive implications for growth in drilling in liquids-rich regions such as the Montney and Duvernay,” Rix said.
From the Canadian Energy Centre
“We’re focusing on the opportunity that Canada has, perhaps even the obligation”
It was not a call he wanted to make.
In October 2017, Kevin O’Donnell, then chief financial officer of Nisku, Alta.-based Banister Pipelines, got final word that the $16-billion Energy East pipeline was cancelled.
It was his job to pass the news down the line to reach workers who were already in the field.
“We had a crew that was working along the current TC Energy line that was ready for conversion up in Thunder Bay,” said O’Donnell, who is now executive director of the Mississauga, Ont.-based Pipe Line Contractors Association of Canada (PLCAC).
“I took the call, and they said abandon right now. Button up and abandon right now.
“It was truly surreal. It’s tough to tell your foreman, who then tells their lead hands and then you inform the unions that those three or four or five million man-hours that you expected are not going to come to fruition,” he said.
Workers guide a piece of pipe along the Trans Mountain expansion route. Photograph courtesy Trans Mountain Corporation
“They’ve got to find lesser-paying jobs where they’re not honing their craft in the pipeline sector. You’re not making the money; you’re not getting the health and dental coverage that you were getting before.”
O’Donnell estimates that PLCAC represents about 500,000 workers across Canada through the unions it works with.
With the recent completion of the Trans Mountain expansion and Coastal GasLink pipelines – and no big projects like them coming on the books – many are once again out of a job, he said.
It’s frustrating given that this could be what he called a “golden age” for building major energy infrastructure in Canada.
Together, more than 62,000 people were hired to build the Trans Mountain expansion and Coastal GasLink projects, according to company reports.
O’Donnell is particularly interested in a project like Energy East, which would link oil produced in Alberta to consumers in Eastern and Atlantic Canada, then international markets in the offshore beyond.
“I think Energy East or something similar has to happen for millions of reasons,” he said.
“The world’s demanding it. We’ve got the craft [workers], we’ve got the iron ore and we’ve got the steel. We’re talking about a nation where the workers in every province could benefit. They’re ready to build it.”
The “Golden Weld” marked mechanical completion of construction of the Trans Mountain Expansion Project on April 11, 2024. Photo courtesy Trans Mountain Corporation
That eagerness is shared by the Progressive Contractors Association of Canada (PCA), which represents about 170 construction and maintenance employers across the country.
The PCA’s newly launched “Let’s Get Building” advocacy campaign urges all parties in the Canadian federal election run to focus on getting major projects built.
“We’re focusing on the opportunity that Canada has, perhaps even the obligation,” said PCA chief executive Paul de Jong.
“Most of the companies are quite busy irrespective of the pipeline issue right now. But looking at the long term, there’s predictability and long-term strategy that they see missing.”
Top of mind is Ottawa’s Impact Assessment Act (IAA), he said, the federal law that assesses major national projects like pipelines and highways.
In 2023, the Supreme Court of Canada found that the IAA broke the rules of the Canadian constitution.
Construction of the Coastal GasLink pipeline. Photograph courtesy Coastal GasLink
The court found unconstitutional components including federal overreach into the decision of whether a project requires an impact assessment and whether a project gets final approval to proceed.
Ottawa amended the act in the spring of 2024, but Alberta’s government found the changes didn’t fix the issues and in November launched a new legal challenge against it.
“We’d like to see the next federal administration substantially revisit the Impact Assessment Act,” de Jong said.
“The sooner these nation-building projects get underway, the sooner Canadians reap the rewards through new trading partnerships, good jobs and a more stable economy.”
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