There has been a lot of loose talk of late about the United States becoming “energy independent” by the end of this decade. A more accurate prediction is that North America may become more energy independent in that time frame as the result of developments under way in both Canada and the U.S.
Today, the U.S. consumes 15 million barrels of crude oil a day and imports eight to nine million barrels, more than half of what it needs. The U.S. Energy Information Administration forecast in 2012 that the U.S. will continue to import 7.5 million barrels a day into 2035.
Canada currently exports about 2.2 million barrels of crude oil a day to the U.S., an amount that could easily double if additional pipeline capacity were available. At present, there is little spare capacity, which is why some shippers are turning to rail transport. This limited pipeline capacity contributes to the sharply discounted price ($30 a barrel) for Canadian crude, a discount that negates some $6-billion in taxes and royalties annually for the Alberta treasury.
Deposits in Texas will compete with light, sweet crude from the Bakken region in North Dakota but not with Canadian heavy crude oil. Gulf Coast refineries, which would receive crude oil through the Keystone XL pipeline, prefer Canadian heavy oil because they are set up to run on heavy crude (today mainly from Venezuela) and cannot easily or economically switch to new light oil in large quantities. And the relative longevity of a predictable oil sands supply versus shorter-lived shale plays further underscores that preference.
Estimates about the future may vary, but all analyses confirm that world energy demand, particularly for oil, will grow for the next 20 years and that the U.S. will continue to use more fossil fuels and import several million barrels of crude oil each and every day.
So if oil is not shipped in increasing quantities by pipeline from Canada – a secure, stable ally – the U.S. will be obliged to rely on crude oil from more volatile Middle Eastern and South American suppliers who share neither American interests nor values.
Under NAFTA, Canada provided security of oil supply to the U.S., including supply on a pro rata basis in times of shortage, in exchange for security of demand. No other oil supplier has made a similar commitment to the U.S.
There is also much confusion between fact and fiction surrounding the greenhouse gas (GHG) contribution of oil sands production. For one thing, crude oil shipped to U.S. refineries from Canada via Keystone XL would displace heavy oil from Venezuela with similar carbon content. For another, on a life-cycle basis, the oil sands industry has already reduced GHG emissions per barrel by 26 per cent since 1990, and technology will enable further progress in the future.
Despite prattle that we should do “more” about climate change, the fact is Canada is the only supplier of oil to the American market that is aligned with the U.S. on GHG emissions and has similar approaches to oversight and transparency.
Oil sands emissions currently constitute 0.1 per cent of global GHG emissions. The 48 million tonnes of emissions from the oil sands in 2012 represent the equivalent of less than 3 per cent of the emissions from U.S. coal-fired power plants, which account for two billion tonnes of GHG emissions annually and are expected to increase by a third by 2025. Some U.S. rhetoric on the subject of climate change often ignores this inconvenient truth.
Often forgotten in the debate is that more than 70 per cent of GHG emissions occur during fuel consumption – regardless of the source of the crude oil.
The Keystone XL pipeline would offset as many as 200 ocean tankers a year, reducing GHG emissions by as much as 19 million tonnes. According to the U.S. Department of State’s Environmental Impact Study, the use of trains to move crude oil produces more than triple the GHG emissions of a pipeline. There have even been shipments by barge down the Mississippi River!
The most important fact of all is that by adding new pipeline capacity to our East and West coasts, as well as to the U.S., Canada can not only help bring North America closer to energy independence but also have more than a single market for crude oil exports. Without additional pipeline capacity in and from Canada, energy independence will remain illusory and Canada’s valuable resource will remain landlocked.
If the East Coast options for the transmission of western crude to Quebec and Saint John materialize, Canadian consumers will be able to wean themselves from foreign imports entirely. (Canada currently imports about 600,000 barrels a day from less stable suppliers such as Saudi Arabia, Nigeria and Angola at substantially higher costs.) An additional bonus would be that the deep discount for Canadian crude oil, due largely to the limitations of existing pipeline capacity and the absence of pipeline approvals, will disappear. Regrettably, the combination of insufficient pipeline capacity, deeply discounted prices in Western Canada and high supply costs in Eastern Canada reduces economic activity across the country.
Approving Keystone and the East and West coast options for pipelines can reduce both Canada’s and America’s vulnerability to the vagaries of more volatile markets. Because opposition to the Keystone XL pipeline is essentially intended to stop production from the oil sands, the smartest move Canada can make is to endorse and start to build pipelines that will enable us to diversify oil exports beyond the U.S. market. That would inject a degree of leverage into the debate.
Above all, we need a balanced approach, one that is based on fact, not fiction, and recognizes the importance of economic growth and environmental stability, not a false choice between one and the other.
Derek H. Burney is senior strategic adviser for Norton Rose Canada LLP and a director of TransCanada Pipelines Ltd. Fen Osler Hampson is director of global security at the Centre for International Governance Innovation.