The Unseen Threat to US-Canada Energy Trade

Written by Dan Byers and Michael Gullo via RealClearEnergy,

“Senators, Calgary is much closer to Washington than Riyadh. And you don’t need the US Navy’s Fifth Fleet to patrol the Great Lakes.” So said then-Premier of Alberta Jason Kenney at a US Senate Energy and Natural Resources Committee hearing in May 2022, just months after Russia’s invasion of Ukraine brought energy security back into the spotlight.

While global markets have calmed down since the 2022 energy crisis, geopolitical tensions have worsenedthere is war in Europe and the Middle East, and economic nationalism and protectionism are on the rise. Uncertainty reigns, which makes the North American energy alliance that Prime Minister Kenney championed all the more important. However, a sector-by-sector cap-and-trade system designed to meet the Canadian economy’s ambitious 2030 greenhouse gas (GHG) targets threatens this increasingly important partnership.

While it goes without saying that energy trade between the US and Canada is critical to each country’s energy security and economic prosperity, Canada’s role in meeting US demand for a safe and secure supply of affordable energy is often overlooked or misunderstood by policymakers.

Even though the US is the world’s largest producer of oil and gas, it increasingly relies on its neighbor to the north to supply much-needed heavy crude to refineries and keep the flow flowing to households and industry. In fact, the increase in Canadian imports is an important factor in reducing America’s dependence on OPEC countries, as the country now accounts for more than 50% of US oil imports. Meanwhile, practically all natural gases that comes to the US comes from Canada and is also the main supplier of electricity and important minerals such as uranium. In total, two-way energy trade in oil, natural gas, electricity and uranium reached a record total in 2023 of USD 156 billion.

This partnership for energy security should not be taken for granted. Serious potential disruptions loom, especially if Canada’s plans to cap emissions from its upstream oil and gas sector go ahead as planned. Although Canada’s emissions cap does not directly limit energy production, it will do so as a practical matter because the substantial costs and long lead times required to approve and implement emission reduction technologies to power oil and gas operations (such as would be carbon capture and storage). (CCS), waste heat recovery systems and small modular reactors) leave the industry with no other options.

This could force Canadian producers to scale back operations as a compliance measure. Estimates suggest the reduction could range from 626,000 at how much 2,000,000 barrels per day — amounts equivalent to 16 – 52% of US imports of Canadian crude oil. Similarly, natural gas producers would have to cut production by about 2.2 billion cubic meters per day, or about 76% of imports to the US. All this at a time when energy demand is rising and the energy sector’s dependence on natural gas is increasing in response to coal phase-out, transport electrification and data center expansion.

Simply put, the de facto production caps being considered by the Canadian government threaten to severely restrict cross-border energy trade in a way that harms our shared economic and security interests. It shouldn’t go ahead as proposed, but that doesn’t mean the industry is opposed to ambitious emissions action. On the contrary, energy companies on both sides of the border are investing billions of dollars in the transition to a cleaner energy future. Progress abounds in both the US and Canada, from investments in multibillion-dollar CCS projects and alternative fuels such as renewable natural gas to clean hydrogen production and world-leading actions by methane reduction along the oil and gas value chain. This commitment is unwavering and promises to improve North America’s energy security while meeting international demand for our (lower GHG footprint) exports.

Policymakers should seek to strengthen cross-border collaboration on energy security, infrastructure, climate change policy, harmonized standards, and the development and deployment of key clean energy technologies. This coordination should recognize and protect the fundamental role each country plays in increasing North America’s prosperity, meeting global demand, and building resilient energy supply chains. With this broader view, consideration should also be given to the increasingly important and integrated role that both countries play in providing safe, secure and clean energy supplies to overseas markets and allies NATO.

Together, Canada and the US have dominated oil and global growth over the past decade, creating an energy-secure North America while leading billions of people in innovation and technologies designed to reduce emissions. Policy actions that limit production and export capacity could reverse this progress, leaving us and our allies more vulnerable. Instead, we must use our deeply interconnected energy systems and strong trade relationships to support a North American energy security framework that will deliver benefits for decades to come. Our organizations and collective members are prepared to be a fully committed partner in this effort.

Dan Byers is Vice President of Policy at the US Chamber of Commerce’s Global Energy Institute.

Michael Gullo is vice-president of policy at the Business Council of Canada.

By Zerohedge.com

More top reads from Oilprice.com