Our Best Customer
In 2015, virtually all Canada’s natural gas and crude oil exports were to one customer: the United States. There are, of course, good reasons for this. They are our closest neighbour and the only country with whom we share a land border. They are a longtime ally and a large market that buys a host of Canadian goods and services.
On the energy front, however, that is changing. New techniques in accessing gas and oil from shale formations has unlocked large quantities of previously inaccessible resources. U.S. production of both natural gas and oil has increased dramatically.
The North American Glut
Strong and growing U.S. production has created significant competitive challenges for Canadian producers trying to export into the traditional U.S. market. Canadian exports to the U.S. of natural gas have fallen 23 per cent by volume from 2006 to 2015.
While Canadian oil producers have managed to increase crude oil exports into the U.S. in recent years by displacing other import sources (e.g. Venezuela), overall growing production and a lack of export capacity have resulted in an oversaturated North American market. This has depressed prices relative to international benchmarks.
Double Jeopardy: U.S. Now an Exporter
On December 18, 2015, the United States lifted its 40-year ban on oil exports. The U.S. is also exporting increasing quantities of natural gas—notably into central Canada—and has even begun exporting LNG overseas. This means that Canada has one more competitor when selling oil and natural gas, both domestically and overseas. It’s another reason Canada needs to build infra-structure as soon as possible—to access new markets, enabling us to diversify our exports, and gain better prices in a cost-effective manner.