As Canada faces a potential economic crisis in the form of a trade barrier that U.S. President Donald Trump has threatened to erect along America’s borders with Canada and Mexico in the form of tariffs, the Canadian Association of Oil Producers (CAPP) is calling on whomever forms the next federal to buttress its single most valuable export: energy.
“The global landscape is shifting rapidly,” CAPP president Lisa Baiton says in a press release accompanying a new seven-point plan CAPP has released for bolstering Canada’s energy sector and diversifying its markets.
“In recent weeks, it’s become clear our relationship with America has fundamentally changed—and we must act with urgency. Our focus should be on building a tariff-proof economy, not just for oil and natural gas, but for all Canadian products. This means building more pipelines, transportation corridors, LNG export facilities, expanding our ports – anything that provides Canadian businesses and Canadian products with direct access to global markets.”
According to CAPP, Canada produces 5.7 million barrels of oil per day, making it the world’s fourth largest oil producer and the world’s fourth largest natural gas producer at 18.4 billion cubic feet per day.
Alberta is Canada’s largest producer of both oil and natural gas, and B.C. is Canada’s second largest natural gas producer.
But the growth of Western Canada’s fossil fuel sector has been based largely on a single customer – the U.S. – which is now signalling it doesn’t want or need Canadian goods or commodities, including oil and natural gas. Trump has threatened to apply 10 per cent tariffs on Canadian energy imports.
The newly expanded Trans Mountain pipeline and oil export terminal in Burnaby, and soon-to-be completed LNG Canada project in Kitimat, will provide Western Canadian oil and gas the chance to find new markets outside of the U.S. But there is still little egress for Alberta oil to Eastern Canada and beyond.
The Energy East pipeline project, which would have transported oil from Alberta to Eastern Canada to provide refineries there with Canadian oil, was one of three major oil pipeline proposals cancelled in the last nine years.
The others were the Northern Gateway project through B.C., cancelled outright by the Trudeau Liberal government, and the Keystone XL project, which was first delayed by the Barack Obama administration in the U.S., permitted by the previous Trump administration, and then killed outright by the Joe Biden administration.
Trump recently posted on Truth Social that the Keystone XL pipeline should be immediately resurrected, despite saying in January, “We don’t need their oil and gas. We have more than anybody.”
Meanwhile, there have also been musings among Canadian politicians about resurrecting the Energy East project.
Both Keystone XL and Energy East were TC Energy (TSX:TRP) projects, and TC Energy isn’t even in the oil pipeline business anymore, so it’s unlikely the company would take on the challenge.
After spinning out South Bow Corp. to take over its oil pipelines, TC Energy is now a pure-play gas and power company, and its Mainline pipeline is no longer available for conversion to oil.
When the Energy East project was first proposed, the plan was to convert and expand the east-west Mainline natural gas pipeline to an oil pipeline. That’s no longer an option, according to TC Energy.
“With respect to spare capacity on the mainline, I would just say that given the strong demand that we've seen for natural gas, the amount of spare capacity that we have is very different today than it was 10 years ago, back in 2015,” TC Energy executive vice-president Stan Chapman said in a recent investor call.
Natural gas flows on the Western Mainline have since increased from 3 bcf per day to 5 bcf, he said, “which has resulted in all the available Mainline capacity being fully contracted.”
TC Energy CEO François Poirier said the company is now more focused on a possible expansion of its Coastal GasLink pipeline – an expansion that would consist mainly of boosting gas volumes with the addition of more pumping and compression stations – and on investments in the U.S.
“On the natural gas side, there is absolutely demand for more LNG export and market opportunity for us to prosecute,” he said. “We're very bullish about the prospects for CGL Phase 2 happening. That, of course, is only an input into the FID decision that our customer, LNG Canada, will make in due course.
“And looking at other infrastructure in Canada, it's going to have to compete for capital in our company as it has for the last few years with projects in other jurisdictions.
"Right now, we see the highest risk-adjusted returns being in the United States. The vast majority of our discretionary capital is going, and we expect that it will continue to go, into the United States.”
TC Energy’s shifting focus to the U.S. is just one example of energy investments being chased away from Canada to the U.S.
During the Trudeau Liberal government’s administration, major energy investments in pipelines, LNG projects and other energy infrastructure were either outright rejected or discouraged through government policy or inaction, including projects like Northern Gateway pipeline.
CAPP estimates potential investments in LNG projects alone that were ultimately cancelled would have totalled $164 billion in investment.
It estimates another $63 billion worth of pipeline projects, $30 billion in oil sands projects, and $22 billion in refinery projects that had been proposed over the last ten years were also shelved.
LNG represents the biggest opportunity loss.
CAPP notes that, in 2015, neither Canada nor the U.S. were exporting LNG. Ten years on, the U.S. has 25 billion cubic feet (bcf) of LNG export capacity in operation or under construction, whereas Canada has just 2.5 bfc of export capacity nearing operation or under construction -- one-tenth of what is being developed in the U.S.
CAPP is urging whomever forms the next government in Canada to focus on exploiting Canada’s energy resources.
“Canada and our energy sector are at a crossroads,” Baiton said. “Regardless of the threat of tariffs, the United States is making a seismic shift in its policy approach, making rapid reforms to climate, energy and tax frameworks. Canada must act just as quickly.
“To help attract the next generation of investment and capture the opportunities ahead, the next federal government must actively promote oil and natural gas as a source of pride and a long-term cornerstone of our economy.”
CAPP’s seven-point plan for developing Canadian energy includes:
- accelerating the approval of major projects already in the federal review process, including west coast LNG projects;
- advancing emissions reduction technologies, such as carbon capture and storage and methane abatement;
- repealing the Impact Assessment Act to speed up environmental approval and permitting; and
- diversifying oil and gas markets
