By Dan ByersMichael Gullo
September 18, 2024
“Senator, Calgary is closer to Washington than Riyadh. And you don’t need the US Navy’s Fifth Fleet to patrol the Great Lakes. So, Alberta Premier Jason Kenney said at a US Senate Energy and Natural Resources committee hearing in May 2022, only a few months after Russia’s invasion of Ukraine brought energy security back into the spotlight.
While global markets have calmed since the 2022 energy crisis, geopolitical tensions have worsened, there are wars in Europe and the Middle East, and economic nationalism and protectionism are on the rise. Uncertainty reigns, which makes Premier Kenney’s North American energy alliance a champion. However, the sector-by-sector cap-and-trade system designed to meet the Canadian economy’s ambitious 2030 greenhouse gas (GHG) targets threatens this increasingly important partnership.
While it goes without saying that US-Canada energy trade is essential to each country’s energy security and economic prosperity, Canada’s role in responding to US demand with a safe and secure supply of affordable energy is often overlooked or misunderstood by policymakers.
Although the US is the world’s largest producer of oil and gas, it is increasingly dependent on its northern neighbor to supply the heavy crude oil refineries need and keep power flowing to households and industry. In fact, the growth in Canada’s imports is an important factor in reducing America’s dependence on OPEC countries, as these countries now account for more than 50% of US crude oil imports. Meanwhile, virtually all natural gas coming to the US comes from Canada, and it is also the main supplier of electricity and important American minerals such as uranium. In total, two-way energy trade of oil, natural gas, electricity and uranium reached a record total in 2023 of $156 billion USD.
This energy security partnership should not be underestimated. The potential for serious disruption is looming, especially if Canada’s intention to regulate emissions produced by the upstream oil and gas sector moves forward as envisioned. While Canada’s emissions cap does not directly limit energy production, it will do so as a practical matter, given the substantial costs and long lead times required to approve and deploy emission reduction technologies to power oil and gas operations (such as carbon capture and storage. (CCS), waste heat recovery systems, and small modular reactors) leaving the industry with no other options.
This could force Canadian producers to limit their operations as a compliance measure. Estimates indicate that the curtailment could range from 626,000 to 2,000,000 barrels per day – an amount equal to 16 – 52% of Canada’s crude oil imports from the US. In addition, natural gas producers will have to cut production by about 2.2 billion cubic feet per day, or about 76% of imports into the US. coal retirement, transportation electrification, and data center expansion.
Simply put, the de facto production cap being considered by the Canadian government threatens to restrict cross-border energy trade in ways that harm our economic and security interests. They don’t necessarily go ahead as proposed, but that doesn’t mean the industry is against ambitious action on emissions. On the contrary, energy companies on both sides of the border are investing billions of dollars to transition to a cleaner energy future. Much progress has been made in the US and Canada, from investments in multi-billion dollar CCS projects and alternative fuels such as renewable natural gas to clean hydrogen production and major world action to reduce methane throughout the oil and gas value chain. This commitment is unchanged, and promises to improve North American energy security while meeting international demand for exports (lower GHG footprint).
Policymakers should seek to strengthen cross-border collaboration on energy security, infrastructure, climate change policy, harmonized standards and the development and deployment of key clean energy technologies. This coordination must recognize and protect the fundamental role each country plays in promoting North American prosperity, meeting global needs and building resilient energy supply chains. Taking this broader view should also consider the increasingly important and integrated role these countries play in providing safe, secure and clean energy supplies to overseas markets and NATO allies.
Together, Canada and the US have dominated global oil and growth in the past decade, creating North America’s energy security while driving billions into innovation and technology designed to reduce emissions. Policy actions that limit production and export capacity could reverse this progress, making us and our allies more vulnerable. Instead, we must use our interconnected energy system and solid commercial relationships to support a North American Energy Security framework that will deliver benefits for decades. Our collective organization and members are ready to be committed partners in this effort.
Dan Byers is Vice President of Policy at the US Chamber of Commerce’s Global Energy Institute.
Michael Gullo is Vice President of Policy at the Business Council of Canada.
This article was originally published by RealClearEnergy and is available via RealClearWire.
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