Skip to main content

Commentary: Canada in the world's energy future, part 2

Changing energy markets and Canada's competitive challenge

Jeff Gaulin, Vice-President Communications, Canadian Association of Petroleum Producers

As an energy producer, Canada exists in turbulent times.

In the last two years, we’ve seen a series of structural changes in energy markets around the world. These are global changes that will have a long-term impact on Canada.

The steep fall in world prices for oil and natural gas is due to slower demand and higher supply. This has caused global competition to intensify. Examples include:

  • Demand for oil in Asia is growing at a slower pace — though in large amounts.
  • OPEC and Russia continue producing at record-high levels.
  • International sanctions on Iran have been lifted, and it is supplying millions of new barrels of oil to global markets.
  • Mexico has opened its oil sector to private investment in an effort to sell more oil to the United States, in direct competition with Canada.

Closer to home, increasing production in the United States has created a direct and growing competitive challenge to Canada’s oil and natural gas sector.

For decades, Canada has sold oil exclusively to the United States. Canada produces four million barrels of oil per day, but we sell three million barrels — or 75% of what we make — to the United States. The U.S. has been a good customer for us. But today our #1 customer is also our #1 competitor.

Today our #1 customer is also our #1 competitor.

There is an energy revolution going on in America. Innovation and technology in the last decade have unlocked value from energy sources once considered unreachable or uneconomic. During the Obama years, this innovation helped American oil production jump by 4.4 million barrels a day. That’s more than all the oil we make in Canada.

That increase has made the United States the second-largest oil producer in the world — second only to Saudi Arabia. It’s also created a regional oversupply in North America, causing Canadian oil to be sold at a discount to world prices.

In 2016, the U.S. Congress lifted a 40-year-old ban on American oil exports. Now, for the first time since Richard Nixon was president, the U.S. is exporting oil offshore. It’s being piped to American coasts, loaded onto tankers, and shipped offshore to new customers in Asia and Europe. The first-ever shipment of North Dakota oil arrived in the Netherlands last May. And American oil exports into Canada are growing every day.

That’s right, Canada, with the third-largest oil reserves in the world, imports American oil.

In Ontario, Québec and Atlantic Canada, more than half the oil used every day is imported. It comes by pipe up across the border from the United States, where more than five billion barrels have been pumped since 1941.

The oil also comes by tanker down the St. Lawrence River from places overseas, including Saudi Arabia, Algeria, Angola, and Nigeria. Despite having far more oil than we can domestically consume, last year we paid $14 billion to import oil from other countries. I am sure that is one trade deal that makes President Trump happy. And under the Trump administration, the competition is only going to get tougher.

Last year we paid $14 billion to import oil from other countries.

So how should we respond to this competitive challenge?

First, we need a “Team Canada” approach. All industries. All regions. All governments.

Trade concerns with the United States are bigger than just the oil-and-gas industry. These concerns affect every industry in every part of the country, from Chilliwack to Chicoutimi.

At a recent energy conference, the CEO of Hydro-Québec said he was concerned about “market access” — about the struggle to build transmission lines to export Québec energy to American consumers. Trust me, we in the oil and natural gas industry know how he feels.

Second, we need to build links to more customers in growing markets around the world.

This includes building more pipelines to reach more customers safely — in Canada and abroad. Our existing pipeline network is already congested. Today, we have capacity to move four million barrels of Canadian oil by pipeline every day. Last year, we shipped on average 3.981-million barrels per day.

So the approvals last November by Prime Minister Trudeau of two pipelines — the Trans Mountain expansion and the Enbridge Line 3 replacement — are positive developments. The news about Keystone XL is also encouraging, though it keeps us tied to our American customer when we need to find global new customers.

Even if all these pipelines get built, the demand for Canadian oil will exceed this pipeline capacity over the next 15-20 years. So it will take more energy infrastructure to deliver more Canadian oil to Canadians and to customers around the world.

Finally, I believe through innovation and technology, we can create a competitive advantage for Canada on the world stage. I believe how we manage the environment can become our global strength.

Jeff Gaulin
Vice-President Communications
Canadian Association of Petroleum Producers


This is part 2 of 3 in a series of commentaries on Canada in the World’s Energy Future. Return next week for “A Vision of our Future: Innovating to create a more cost and carbon-competitive oil and natural gas industry.” Read part 1: "Global energy demand and Canada's tremendous export opportunity."