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Canadian Energy Centre

Proposed emissions cap threatens critical Canada-U.S. energy trade

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8 minute read

From the Canadian Energy Centre

By Deborah Jaremko

The vast majority of Canadian oil exports to the United States are processed in Midwest states. Above, the Cushing Terminal near Cushing, Oklahoma is Enbridge’s largest tank farm and the most significant trading hub for North American crude.

Canada and the United States share something that doesn’t exist anywhere else. A vast, interconnected energy network that today produces more oil and gas than any other region – including the Middle East, according to analysis by S&P Global.

It’s a blanket of energy security researchers called “a powerful card to play” in increasingly unstable times.

But, according to two leaders in governance and energy policy, that relationship is at risk.

Analysis has shown that the federal proposal to cap emissions in Canada’s oil and gas sector would result in reduced production. That likely means less energy available to Canada’s largest customer, the United States.

Jamie Tronnes, executive director of the Center for North American Prosperity and Security, is a former Canadian political staffer born in northern Alberta now living in Washington, D.C.

Jamie Tronnes

Heather Exner-Pirot is a prominent energy policy analyst and senior fellow with the Ottawa-based Macdonald-Laurier Institute.

Heather Exner-Pirot

Here’s what they shared with CEC.

CEC: The U.S. is one of the world’s largest oil and gas producers. Why does it need imports from Canada?

HEP: It’s because all oil is not the same. The United States developed its refinery industry before the shale revolution, when they were importing heavier crudes. Canada has that heavier crude. They are now exporting some of their sweet light oil and importing Canadian crude because that’s what their refinery mix requires.

What’s interesting is that we have never exported more Canadian crude to the United States than we are right now. Even as they have become the world’s largest oil producer, they’ve never needed Canadian oil more than today.

They also import a ton of natural gas from us. They have become the world’s biggest gas producer and the world’s biggest gas exporter, but part of that, and having their LNG capacity being able to so quickly surpass Qatar and Australia, is because some of the production is being backfilled by Canada.

CEC: Will the incoming new administration (either Democrat or Republican) impact the Canada-U.S. energy relationship?

JT: I don’t see a big change happening in such a way as it did when the Biden administration came in with the axing of the Keystone XL pipeline. Now that Russia has invaded Ukraine, the global energy market has changed radically.

On the Republican side, Trump often repeats the phrase “drill, baby drill.” The issue is that the U.S. is already drilling about as much as demand allows.

I don’t think a Harris government would move quickly to limit oil and gas production without having a strategic alternative in place. It simply would make her look very weak, and she has explicitly said that she would not ban fracking.

In the post-COVID world, I believe that the Democrat side of the aisle is coming to the view that it was a geopolitical mistake in terms of securing North American energy dominance to cut the Keystone XL pipeline.

The reality is that being able to export refined Canadian feedstock is key to keeping the U.S. as an energy superpower.

The U.S. government continues to offer and subsidize tax credits for investment in carbon capture technology. Even though Trump has said that he would end all of those carbon capture credits and subsidies, it still would not stop the U.S. from importing Canadian oil and gas.

That’s only going to grow as things like AI continue to create more demand for energy. A huge amount of the United States electrical energy grid is powered still by natural gas, and that’s going to take decades to change.

CEC: Would a reduction in Canadian production from the federal government’s proposed oil and gas emissions cap impact the United States?

HEP: Yes, and we should be raising the alarm bells. The federal government has said it is a cap on emissions, not a cap on production, but all the analysis that Alberta and the oil and gas sector have done is that it will create somewhere between 1 million and 2 million barrels of production being shut in.

Well, 95 per cent of our exports are to the United States. If we are shutting in 1 million barrels or 2 million barrels, that all comes out of their end just when their shale oil is expected to plateau and decline.

A cap would also tap down natural gas production and LNG capacity. If you’re Japan or South Korea and you’re looking to secure 20 years of supply, the cap creates a lot of uncertainty with that Canadian supply. There’s zero uncertainty with Qatar’s supply. If you’re Japanese, these are not pleasant conversations. This is not giving you confidence. And if you don’t have confidence in LNG, you’re going to burn coal.

In a perfect world, Canada would supply LNG to Asia, the United States would supply it to Europe, and we’d be a pretty energy-independent Western alliance.

I wish we would be honest that we need a different way to reduce emissions that does not take away from production, because that capacity is a big part of what we offer our allies right now.

JT: It threatens the security of North America in a big way because the energy dominance of the United States is tied to Canada. Especially with what’s going on in Russia and other countries, it behooves us as Canadians and me as an American to remember that security is not freely granted.

We have to make sure that we are thinking more holistically when we think of things like emissions cap legislation that’s going to have knock-on effects and may even increase emissions. If you’re trying to replace that feedstock, it’s got to come from somewhere.

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Artificial Intelligence

World’s largest AI chip builder Taiwan wants Canadian LNG

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Taiwan Semiconductor Manufacturing Company’s campus in Nanjing, China

From the Canadian Energy Centre

By Deborah Jaremko

Canada inches away from first large-scale LNG exports

The world’s leading producer of semiconductor chips wants access to Canadian energy as demand for artificial intelligence (AI) rapidly advances.  

Specifically, Canadian liquefied natural gas (LNG).  

The Taiwan Semiconductor Manufacturing Company (TSMC) produces at least 90 per cent of advanced chips in the global market, powering tech giants like Apple and Nvidia.  

Taiwanese companies together produce more than 60 per cent of chips used around the world. 

That takes a lot of electricity – so much that TSMC alone is on track to consume nearly one-quarter of Taiwan’s energy demand by 2030, according to S&P Global. 

“We are coming to the age of AI, and that is consuming more electricity demand than before,” said Harry Tseng, Taiwan’s representative in Canada, in a webcast hosted by Energy for a Secure Future. 

According to Taiwan’s Energy Administration, today coal (42 per cent), natural gas (40 per cent), renewables (9.5 per cent) and nuclear (6.3 per cent), primarily supply the country’s electricity 

The government is working to phase out both nuclear energy and coal-fired power.  

“We are trying to diversify the sources of power supply. We are looking at Canada and hoping that your natural gas, LNG, can help us,” Tseng said. 

Canada is inches away from its first large-scale LNG exports, expected mainly to travel to Asia.  

The Coastal GasLink pipeline connecting LNG Canada is now officially in commercial service, and the terminal’s owners are ramping up natural gas production to record rates, according to RBN Energy. 

RBN analyst Martin King expects the first shipments to leave LNG Canada by early next year, setting up for commercial operations in mid-2025.  

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Canadian Energy Centre

Report: Oil sands, Montney growth key to meet rising world energy demand

Published on

Cenovus Energy’s Sunrise oil sands project in northern Alberta

From the Canadian Energy Centre

By Will Gibson

‘Canada continues to be resource-rich and competes very well against major U.S. resource bases’

A new report on North American energy highlights the important role that Canada’s oil sands and Montney natural gas resources play in supplying growing global energy demand.

In its annual North American supply outlook, Calgary-based Enverus Intelligence Research (a subsidiary of Enverus, which is headquartered in Texas and also operates in Europe and Asia) forecasts that by 2030, the world will require an additional seven million barrels per day (bbl/d) of oil and another 40 billion cubic feet per day (bcf/d) of natural gas.

“North America is one of the few regions where we’ve seen meaningful growth in the past 20 years,” said Enverus supply forecasting analyst Alex Ljubojevic.

Since 2005, North America has added 15 million bbl/d of liquid hydrocarbons and 50 bcf/d of gas production to the global market.

Enverus projects that by the end of this decade, that could grow by a further two million bbl/d of liquids and 15 bcf/d of natural gas if the oil benchmark WTI stays between US$70 and $80 per barrel and the natural gas benchmark Henry Hub stays between US$3.50 and $4 per million British thermal unit.

Ljubojevic said the oil sands in Alberta and the Montney play straddling Alberta and B.C.’s northern boarder are key assets because of their low cost structures and long-life resource inventories.

“Canada continues to be resource-rich and competes very well against major U.S. resource bases. Both the Montney and oil sands have comparable costs versus key U.S. basins such as the Permian,” he said.

“In the Montney, wells are being drilled longer and faster. In the oil sands, the big build outs of infrastructure have taken place. The companies are now fine-tuning those operations, making small improvements year-on-year [and] operators have continued to reduce their operating costs. Investment dollars will always flow to the lowest cost plays,” he said.

“Are the Montney and oil sands globally significant? Yes, and we expect that will continue to be the case moving forward.”

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