Historic Energy Decisions in U.S. and Canada
- Feb 9, 2013 12:00 am GMT
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Wishful thinking by some people to the contrary, fossil fuels are here to stay for at least the next 30-40 years. In North America this timeframe will be an era of transition as the proportion of renewable energy in the U.S. and Canada will rise while the consumption of fossil fuels lessens. Globally this energy transition will be similar in most developed countries, and all will be greatly affected by rapidly growing middle classes in India and China that demand all the trappings of higher living standards, including cars. So fossil fuels are probably going to make up a larger proportion of the energy mixes in those countries for a longer period.
This is the big-picture background against which Canada and the U.S. must develop energy policies for their short- and long-term futures. Historically, the U.S. and Canada have enjoyed a symbiotic energy relationship: Canada sold energy and the U.S. bought it — the lion’s share of U.S. energy imports coming from its neighbor to the north. But now, the U.S. and Canada are entering a period of still overlapping, but fundamentally different, energy agendas.
What’s changing is the U.S. is increasing production of its domestic oil and is experiencing a game-changing windfall of natural gas. The U.S. Energy Information Administration (EIA), part of the Department of Energy, predicted in a December report that the U.S. will be close to oil independence by 2040 and natural gas independence by 2020.
The increase in U.S. oil production is the result of advances in non-traditional drilling technologies, including oil hydrofracking, that enable companies to produce oil that was difficult to find and drill for until now. For its natural gas production, the U.S. is in the throes of a hydrofracking frenzy, producing natural gas in unprecedented amounts. In less than a decade, according to the EIA report, U.S. production of its domestic natural gas will exceed its consumption, enabling the U.S. to export natural gas in a readily shippable, liquefied form.
The U.S. trend toward energy self sufficiency represents a precarious situation for Canada’s economic wellbeing since 95 percent of Canada’s energy exports (including hydroelectric power) today go to the U.S. Canada’s leaders and energy producers must contemplate a future with a dramatically shrunken U.S. market, forcing them to scramble to find new energy customers for Canada’s prodigious fossil fuel reserves.
Those new energy customers exist in China and India, and therein lies a problem since most of Canada’s oil and natural gas deposits are in the land-locked province of Alberta without easy, pipeline access to coastal refineries and shipping ports. Much of these fuels currently are piped south directly into the northern U.S. through existing pipelines. A U.S. decision on the TransCanada Keystone XL pipeline that would greatly extend the route of crude oil to refineries in Texas and would help to solidify the U.S. market, is being delayed by the Obama administration and may never be built because of decreasing demand as well as formidable environmental opposition. Environmental opponents contend that the pipeline would discourage expansion of renewable sources while encouraging increased development of synthetic crude from Canada’s oil sands with dire environmental impacts.
And so, Canada must take major steps to invest in pipeline infrastructure in order to serve Chinese and Indian markets. A proposed pipeline to the Vancouver area through British Columbia is being met with increasing hostility from environmentalists and from indigenous First Nation inhabitants of the lands through which the pipeline would have to pass. Prospects for a pipeline to refineries and ports in eastern Canada look more promising because some pipelines are already in place and regulatory hurdles are less onerous. Last week, Canada’s federal government voiced strong support for building a west-to-east pipeline. The U.S. advance toward energy independence, in large part a function of new technologies, now makes large pipeline infrastructure projects in Canada a necessity.
While the U.S. and Canada will no doubt continue to have some degree of a buyer-seller energy relationship – Canadian hydropower will certainly continue to be sold to the U.S., for example — the new energy developments mark a fundamental change in these two countries’ traditional energy relationships with each other and with the world.