Skip to main content
The Globe and Mail
Support Quality Journalism
The Globe and Mail
First Access to Latest
Investment News
Collection of curated
e-books and guides
Inform your decisions via
Globe Investor Tools
Just$1.99
per week
for first 24 weeks

Enjoy unlimited digital access
Enjoy Unlimited Digital Access
Get full access to globeandmail.com
Just $1.99 per week for the first 24 weeks
Just $1.99 per week for the first 24 weeks
var select={root:".js-sub-pencil",control:".js-sub-pencil-control",open:"o-sub-pencil--open",closed:"o-sub-pencil--closed"},dom={},allowExpand=!0;function pencilInit(o){var e=arguments.length>1&&void 0!==arguments[1]&&arguments[1];select.root=o,dom.root=document.querySelector(select.root),dom.root&&(dom.control=document.querySelector(select.control),dom.control.addEventListener("click",onToggleClicked),setPanelState(e),window.addEventListener("scroll",onWindowScroll),dom.root.removeAttribute("hidden"))}function isPanelOpen(){return dom.root.classList.contains(select.open)}function setPanelState(o){dom.root.classList[o?"add":"remove"](select.open),dom.root.classList[o?"remove":"add"](select.closed),dom.control.setAttribute("aria-expanded",o)}function onToggleClicked(){var l=!isPanelOpen();setPanelState(l)}function onWindowScroll(){window.requestAnimationFrame(function() {var l=isPanelOpen(),n=0===(document.body.scrollTop||document.documentElement.scrollTop);n||l||!allowExpand?n&&l&&(allowExpand=!0,setPanelState(!1)):(allowExpand=!1,setPanelState(!0))});}pencilInit(".js-sub-pencil",!1); // via darwin-bg var slideIndex = 0; carousel(); function carousel() { var i; var x = document.getElementsByClassName("subs_valueprop"); for (i = 0; i < x.length; i++) { x[i].style.display = "none"; } slideIndex++; if (slideIndex> x.length) { slideIndex = 1; } x[slideIndex - 1].style.display = "block"; setTimeout(carousel, 2500); }

It's fair to say that many Canadian policy makers and business leaders are transfixed by the status of the Keystone XL pipeline. The U.S. government's approval of the Keystone project would add 20 per cent more pipeline capacity and greatly improve Canada's ability to supply the U.S. oil market in the near term. However, Keystone is only part of a bigger energy issue: rapidly rising U.S. oil and gas production and the threat it poses to exporters, Canada included.

Until very recently, the United States was becoming ever more dependent on foreign sources of energy supply. The U.S. was caught in a classic squeeze play between rising demand for energy on one side and shrinking domestic energy production on the other. By the mid-2000s the U.S. was importing nearly 65 per cent of every barrel of oil it consumed.

How quickly things have changed. After three decades of decline, the U.S. has turned an important corner in its own capacity to supply oil and gas to its thirsty energy market. Thanks to leading-edge extraction technologies – notably hydraulic fracturing (or fracking) and horizontal drilling – energy companies are now able to exploit hydrocarbons trapped in shale and other porous rock formations.

Story continues below advertisement

This advanced technique has led to a boom in energy production – first in natural gas, driving down North American natural gas prices, and now in oil. The exploitation of the Bakken field in North Dakota (not far from the border with Canada) and enhanced recovery in traditional fields in Texas and elsewhere have increased U.S. oil production by more than one million barrels a day since 2010, and rising. The International Energy Agency (IEA) projects U.S. oil production nearly doubling to 11 million barrels a day by 2020, when production is again expected to peak.

The flip side of rising U.S. production is a projected sharp decline in imported oil. By 2020, the IEA projects that U.S. oil imports will decline to five million barrels a day, or less than half of today's imports, before they begin to slowly rise again.

Until now, Canadian oil producers have been able to increase their overall exports to the U.S., which has meant gaining a larger share of the U.S. market at the expense of other suppliers such as Venezuela and countries in the Middle East. But Canada may be hard-pressed to maintain that position in the years ahead. Canadian oil producers are bound to feel the pinch if overall U.S. oil imports continue to shrink further – even if Canada wins more oil import market share and becomes the dominant future supplier of U.S. oil imports.

Canada has numerous factors in its favour – close proximity to the U.S. market, an integrated North American energy distribution infrastructure, heavy crude that is ideal for Texas-based refineries designed to process heavy oil, and a stable eco-political environment. Approval of Keystone XL would help Canada secure its preferred supplier status and simultaneously reduce demand for rail shipments, which are more expensive for Canadian shippers and can pose greater environmental risk.

If the scenario of rising U.S. oil production unfolds, diversification of buyers for Canada's energy production will become more important in the years ahead. It would be critical to have sufficient shipping infrastructure in place in order to reach energy markets in Asia and Europe. This means diversification of shipping alternatives: expanding pipeline (and rail) capacity to the Pacific, the Atlantic and via the U.S., and building up related port infrastructure in Canada and the United States. If pipelines cannot be built due to regulatory and political delays, rail would become the default option.

It remains an open question whether Canada has the ability to design a comprehensive plan to deliver energy to a global market, and then execute on the plan. Moreover, doing so in a way that is acceptable to Canadian society – the so-called "social license to operate" – also remains an open question.

The bottom line? Timely approval of Keystone XL is important, but is only one part of a larger North American energy drama. The expected ongoing rise in U.S. oil production will reduce America's reliance on oil imports over the coming decade. The pressure to diversify Canadian energy sales to a global marketplace will intensify, and the existing bottlenecks created by inadequate shipping infrastructure are bound to tighten. Without an energy delivery strategy and timely implementation, Canada will be hard-pressed to adapt in time.

Story continues below advertisement

Glen Hodgson is senior vice-president and chief economist at the Conference Board of Canada.

Report an error Editorial code of conduct
Due to technical reasons, we have temporarily removed commenting from our articles. We hope to have this fixed soon. Thank you for your patience. If you are looking to give feedback on our new site, please send it along to feedback@globeandmail.com. If you want to write a letter to the editor, please forward to letters@globeandmail.com.

Welcome to The Globe and Mail’s comment community. This is a space where subscribers can engage with each other and Globe staff. Non-subscribers can read and sort comments but will not be able to engage with them in any way. Click here to subscribe.

If you would like to write a letter to the editor, please forward it to letters@globeandmail.com. Readers can also interact with The Globe on Facebook and Twitter .

Welcome to The Globe and Mail’s comment community. This is a space where subscribers can engage with each other and Globe staff. Non-subscribers can read and sort comments but will not be able to engage with them in any way. Click here to subscribe.

If you would like to write a letter to the editor, please forward it to letters@globeandmail.com. Readers can also interact with The Globe on Facebook and Twitter .

Welcome to The Globe and Mail’s comment community. This is a space where subscribers can engage with each other and Globe staff.

We aim to create a safe and valuable space for discussion and debate. That means:

  • Treat others as you wish to be treated
  • Criticize ideas, not people
  • Stay on topic
  • Avoid the use of toxic and offensive language
  • Flag bad behaviour

Comments that violate our community guidelines will be removed.

Read our community guidelines here

Discussion loading ...

To view this site properly, enable cookies in your browser. Read our privacy policy to learn more.
How to enable cookies