The U.S.-Canada Energy Relationship Is Underappreciated – And May Now Be Under Threat

By Dan ByersMichael Gullo

September 18, 2024

“Senators, Calgary is a lot closer to Washington than Riyadh. And you don’t need the U.S. Navy’s Fifth Fleet to patrol the Great Lakes.”   So said then-Alberta Premier Jason Kenney at a U.S. Senate Energy and Natural Resources committee hearing in May of 2022, just a few months after Russia’s invasion of Ukraine thrust energy security back into the spotlight.   

While global markets have calmed since the 2022 energy crisis, geopolitical tensions have worsened, there is war in Europe and the Middle East, and economic nationalism and protectionism are on the rise. Uncertainty reigns, which makes the North American energy alliance Premier Kenney championed all the more important. However, a sector-by-sector cap-and-trade system designed to meet Canada’s ambitious economy-wide 2030 greenhouse gas (GHG) goals is threatening this increasingly important partnership.   

While it should go without saying that U.S.-Canadian energy trade is critical to each country’s energy security and economic prosperity, Canada’s role in responding to U.S. demand with a safe and secure supply of affordable energy is often overlooked or poorly understood by policymakers.  

Even though the U.S. is the world’s largest oil and gas producer, it increasingly relies on its northern neighbor to supply refineries with much-needed heavy crude oil and keep power flowing to households and industry. In fact, growth in Canadian imports is an important factor driving America’s reduced reliance on OPEC countries, as the country now accounts for more than 50% of U.S. petroleum imports. Meanwhile, virtually all natural gas coming into the U.S. comes from Canada, and it is also America’s primary supplier of electricity and important 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 must not be taken for granted. Potential serious disruptions loom, especially if Canada’s intentions to impose a cap on the emissions produced by its upstream oil and gas sector go forward as envisioned.  While Canada’s emissions cap does not directly constrain energy production, it will do so as a practical matter, because the substantial costs and long lead times required to approve and deploy emissions-reducing technologies to power oil and gas operations (such as carbon capture and storage (CCS), waste heat recovery systems, and small modular reactors) leave industry with no other options.   

This could force Canadian producers to curtail operations as a compliance measure. Estimates suggest that curtailment could range from 626,000 to as much as 2,000,000 barrels per day—amounts equivalent to 16 – 52% of U.S. imports of Canadian crude oil.  Similarly, natural gas producers would need to reduce production by approximately 2.2 billion cubic feet per day, or roughly 76% of imports to the U.S. All this at a time when energy demand is rising, and power sector dependence on natural gas grows in response to coal retirements, transportation electrification, and data center expansion. 

Put simply, the de facto production caps under consideration by the Canadian government threaten to severely restrict cross-border energy trade in a way that harms our shared economic and security interests. They should not go forward as proposed, but that does not mean industry opposes ambitious action on emissions. To the contrary, energy companies on both sides of the border are investing billions of dollars on the transition to a cleaner energy future. Progress abounds  in both the U.S. and Canada, from investments in multi-billion dollar CCS projects and alternative fuels such as renewable natural gas to clean hydrogen production and world-leading actions to reduce methane throughout the oil and gas value chain. This commitment is unwavering, and promises to enhance North American energy security while meeting international demand for our (lower-GHG-footprint) exports.  

Policymakers should seek to strengthen cross-border collaboration on energy security, infrastructure, climate change policy, harmonized standards and development and deployment of key clean energy technologies. This coordination should recognize and protect the fundamental role each country plays in enhancing North American prosperity, meeting global demand and building resilient energy supply chains. Taking this broader view should also consider the increasingly important and integrated role both countries play in providing a safe, secure and clean supply of energy to overseas markets and NATO allies.  

Together, Canada and the U.S. have dominated global oil and growth in the past decade, creating an energy secure North America while driving billions into innovation and technologies designed to lower emissions. Policy actions that limit production and export capacity could reverse this progress, leaving us and our allies more vulnerable. We must instead leverage our deeply interconnected energy systems and rock-solid commercial relationships in support of a North American Energy Security framework that will deliver benefits for decades to come. Our organizations and collective membership stand ready to be a fully committed partner in this effort. 

Dan Byers is Vice President of Policy at the U.S. Chamber of Commerce Global Energy Institute.  

Michael Gullo is Vice President of Policy at the Business Council of Canada.  

This article was originally published by RealClearEnergy and made available via RealClearWire.