Sunday, October 21, 2012

Canadians could free themselves from oil imports, but will they?

You are not alone if you think it's odd that Canada--the world's ninth largest exporter of crude oil and petroleum products and the main supplier of oil imports to the United States--is itself a longtime oil importer, importing more than 40 percent of its oil needs this year.

The situation results from historical pipeline development which has left Canada without a major east-west pipeline to bring the huge surplus of oil produced in the western provinces--now primarily from tar sands--to the eastern part of the country. The country's provinces from Ontario eastward currently import a little more than 60 percent of their oil needs from overseas. That may be set to change.

Winston Churchill once said, "You can always count on Americans to do the right thing--after they've tried everything else." It seems he could have been talking about the Canadians and their oil predicament. Earlier this year TransCanada, a major pipeline company, proposed expanding the current pipeline system known as Keystone to carry more western Canadian crude to America's Gulf Coast. But, the pipeline giant was rebuffed by the Obama Administration in an election-year gambit to satisfy environmentalists concerned about the impact of tar sands development on climate change and water quality. Enbridge, another Canadian pipeline company, has proposed the so-called Northern Gateway pipeline route from the tar sands to the British Columbia coast. From there the oil would be exported to satisfy growing Asian demand. But practically everyone along the Northern Gateway route has lined up against it including the British Columbian premier.

Now, yet another route is being considered, one that would allow TransCanada to live up to its name. The company's latest proposal would take an east-west natural gas pipeline which is now being underused and convert it into an oil pipeline to bring western Canadian crude to currently import-dependent eastern Canada. The plan, which will require regulatory approval, may not face the stiff opposition that the other two projects faced since this pipeline is largely complete. It would require only some additional work to convert it and link it to refineries and storage depots.

The result would be a flow of up to 1 million barrels per day of oil to eastern Canada, more than enough to displace all of Canada's current imports and possibly allow for exports of crude oil from the eastern seaboard. Canadians would still be subject to world oil prices since oil would remain a global commodity that can be shipped to the highest bidder. But, the country would no longer be vulnerable to supply disruptions from abroad and would be in a position to prevent exports if a national emergency warranted it.

With this change Canada would move closer to true energy independence. It currently exports electricity to the United States and imports only a tiny amount of U.S. electricity due to historical infrastructure or regional rate differentials. Canada is the world's second largest producer of uranium, providing 17 percent of global supply in 2011. Therefore, the country does not need to import any for use in its own nuclear power plants. In 2011 Canada was the world's 14th largest producer of coal and exported about 30 percent of its production. Some imports were recorded. The long border with the United States, a major coal producer, sometimes makes U.S. imports more economical depending on the type of coal and the shipping distances. When it comes to natural gas, however, Canada's National Energy Board reports that while the country produces 70 percent more than it needs, it still imports the equivalent of 31 percent of its consumption--even as it exports the equivalent of 100 percent of Canadian consumption to the United States. As with oil, historical pipeline infrastructure dictates this unusual arrangement. But that is a story for a future piece.

The oil industry has been working on a way to get growing volumes of oil out of western Canada cheaply for some time. And, the cheapest way is via pipeline. Producers have been suffering steep discounts to world prices with Western Canadian Select crude oil futures trading in New York at a discount of about $20 per barrel compared to American Light Sweet Crude which itself has been trading at approximately a $20 discount to Brent Crude in Europe. So, the total discount to prevailing world prices for western Canadian crude is currently around $40. It's easy to see why the industry is anxious for a pipeline that will allow it take advantage of higher world prices.

With opposition running strong against the two alternatives, the oil industry may be forced to consider the TransCanada pipeline conversion proposal to ship oil to eastern Canada, a proposal that happens to coincide with Canada's national interest. But don't expect to hear industry executives whistling "O Canada" at their desks just yet. It's not clear how much support the project will find among those executives.

That support will be critical because the current Canadian government, which must approve the project, has shown itself congenitally incapable of distinguishing between the national interest and the interests of international oil companies. Therefore, the government isn't likely to force the project on the industry even if the pipeline would be a good idea for Canada as a whole. However, if the oil industry ends up embracing the project, the Canadian government will almost certainly rubber-stamp it. And thus, the government and the industry may inadvertently end up doing what has for a very long time been within Canada's grasp and in its best interest, namely, to free the country from imported oil.

Kurt Cobb is an author, speaker, and columnist focusing on energy and the environment. He is a regular contributor to the Energy Voices section of The Christian Science Monitor and author of the peak-oil-themed novel Prelude. In addition, he writes columns for the Paris-based science news site Scitizen, and his work has been featured on Energy Bulletin, The Oil Drum,, Econ Matters, Peak Oil Review, 321energy, Common Dreams, Le Monde Diplomatique and many other sites. He maintains a blog called Resource Insights and can be contacted at


Anonymous said...

Oh, gong show! Consider:

... A group of six major oil companies – including BP and Shell – has just applied for permits to begin exporting U.S. crude oil abroad, starting with sending some of North Dakota’s light sweet crude to Canada, where refiners will pay a higher price.
If permits are granted, this would mark the first time in decades that oil companies were selling significant amounts of U.S. crude internationally. ....

yvesT said...

And how about the US ?
Why American peak oil "columnists" seem almost totally unable to adress the US apart from a global "world view" ?
The US is still the third world crude producer in the world, and well ahead of Canada.
With a per capita consumption similar to Europe, the US could be almost independent today.
First thing would be to get over the ridiculous myth "first oil shock= Arab or OPEC embargo"
The reality being : First oil shock = US 1971 production peak
(and dropping of Bretton Woods and devaluation of the $ that closely follo US peak)
The first oil shock is about the barrel price rising quickly, but global production also kept rising throughout.
The embargo was an almost complete non event in market terms, in number of barrels taken out of the market, see for instance Maugeri book page 113 available on google books :
Moreover it was never effective from KSA to the US, KSA cheating the embargo thoughout, see James Akins (US ambassador to KSA at the time, and the guy who audited US capacity for Nixon after the peak) in below part 2 around 20:00 :
Second thing would be most Americans being aware of below graph :
Third thing would to set up real saving policies, that is volume based gas tax for instance.

Way too late ? Won't happen anyway ? Why bother ?

Yes probably the case.

gemguy56 said...

The man has some points to be considered....But...he is clearly ignorant on several factors that he omitted.

First: The refiners in Canada that refine imported crude oil have been doing so for a long time now anyhow while it is their decision, as a business, to buy foreign source oil.

Next: The grade of imported oil they buy is a higher grade of oil while their refineries, built in the 1950's 60s and 70s were engineered and built to refine higher grades of crude oil feed stock that was simply not available to them from Canadian sources of conventional crude oil when they initiated the refineries many decades ago.
There was no pipelines existing to supply they imported from the other nations.

Next: The oil pipeline operating companies are not going to build a heavy oil pipeline to those existing refineries for 2 main reasons:
1: The cost of building a pipeline that distance from the source of the heavy crude oil to the refiners in the east has to consider economy of scale while large quantities of crude oil to be transported have to be committed to by the oil producers to make the whole venture profitable to both the crude oil supplier and the pipeline operating company.
2: Those refineries would have to spend considerable amounts of money re-engineering their refinery capabilities to refine a lower grade of heavy oil that results in lower priced petroleum by products that they have to have a market for ...which they do not have at present in any great demand relative to the volumes that the oil production companies and or pipeline company would want the refiners to commit to making it worth their while to build a pipeline that transports say 500,000 to 800,000 barrels a day
*** Most people do not understand that the heavy oil coming from north eastern Alberta is of a different nature than what is know as conventional light to medium, sweet crude oil and everything that is entailed to transport and or refine the heavy crude oil into a variety of refined petroleum products.
The refiners first have to commit to receiving the lower grade heavy crude oil from the producers in volumes that the pipeline company can supply and make it worth their while to build and operate a large capacity crude oil pipeline.

The refiners will choose what they want to refine while they really do not want the notably lower grade crude oil in the first place while they do not want to spend significant amounts of money to re-engineer their refineries to receive and refine lower grade crude petroleum that results in lower grade refined petroleum products that they really do not have volume buyers for ....even if they did decide to receive the heavy crude oil and refine the oil.

Meantime, the pipeline operating companies are proposing a large capacity pipeline that would transport large volumes of heavy crude oil to the east coast for export to overseas markets by way of crude oil tanker delivery logistics.

If...( If) they get they receive federal and provincial permission to do so and if they also have commitments to buy the heavy crude oil feed stock that warrants building a large volume system that would be engineered for further increases in production capacity to be committed to transporting to foreign markets ...then the refiners in the areas where the crude oil pipeline pass by could decide to commit to purchasing the heavy crude oil .
If that was the case then the pipeline company would re-engineer their pipeline logistics such that they would tap into their existing pipeline and divert some of the crude oil to refineries that want some of the heavy crude oil production.

Until all those factors come into play the refineries will continue to buy their higher grade oil imported from foreign sources.