Petroleum Economist, June 9, 2011
The US government considers Canadian oil supplies an essential ingredient of energy security, even as competition for resources and assets ratchets up with rival China.
Speaking in Calgary, US ambassador to Canada David Jacobson described his country's need for greater imports from stable sources such as Canada to offset dependence on unstable regimes in the Middle East and North Africa. "The US sees Canada as a pillar of our energy security," he said.
It is already the largest energy-trading relationship in history, with Canada accounting for about 22% of US import demand [please see my post "U.S. Crude Oil Imports from Top 15 Countries, Dec 2010 and Full Year 2010," -- Canada supplied about 22% of total US crude oil imports in 2010, i.e., 1.97 million b/d of crude/please also see chart below, out of a total US imports of crude of 9.16 million b/d, as well as about 22% of total US crude oil and products imports in 2010, i.e., 2.532 million barrels per day---1.97 million b/d of crude oil plus 0.56 million b/d of petroleum products---out of a total US imports of crude and products of 11.753 million b/d -- D.R.). Alberta alone pumps about 1.4 million b/d to US refineries or 7% of overall US consumption [U.S. oil consumption increased by some 380,000 b/d or 2.0% to 19.148 million b/d in 2010, compared to the previous year---please see my post "Top 25 World Oil Consumers, 2009-2010." Separately, of the estimated 2.9 million b/d, sic, of crude oil produced in Canada in 2010, 1.5 million b/d of that was derived from the oil sands of Alberta---please see EIA. -- D.R.].
Canada long ago surpassed Saudi Arabia as the top supplier to the world's largest oil consumer and that relationship is poised to grow exponentially as Canadian producers increase production of oil-sands crude.
Canadian exports to the US have more than doubled since 1993 [US imports from Canada of crude oil increased from 900,000 b/d in 1993 to 1,972,000 b/d in 2010, and US imports from Canada of crude oil and petroleum products increased from 1,181,000 b/d in 1993 to 2,532,000 b/d in 2010 -- D.R.] and are set to double and quadruple over the next two decades.
According to IHS Cera, Canadian oil sands could supply 6.3 million b/d by 2035, not including any other conventional and unconventional production that would push the figure past 7 million b/d. Only Russia and Saudi Arabia would have larger output, IHC Cera added, vaulting Canada into the top tier of oil-producing nations. [...]
But that looming reality seems lost on US President Barack Obama, who has seemed to be reluctant to fully embrace the oil sands even as he has talked of the need to reduce imports from unstable and hostile regimes.
A series of nagging doubts have led some Canadian observers to question the president's energy priorities. For instance, the State Department has held up approvals for TransCanada's Keystone XL pipeline to the Gulf coast [where there are more refineries capable of handling the unusually thick crude, i.e. the heavy, high-sulphur bitumen, and please see map below -- D.R.] while it carries out environmental assessments of the carbon intensity of Canadian oil sands and heavy crude in a move seen as bowing to environmental groups. [...]
[Click on map to enlarge]
Source: PE, here.
Fearing the worst from Obama's climate-change and clean-energy initiatives, the Canadian and Alberta governments have lobbied against the adoption of clean-fuel standards and other environmental policies they claim would discriminate against Canada. [...]
Feeling snubbed by this seeming US indifference, Canada has been courting Asia, and particularly the Chinese, as an alternate buyer of its growing output.
China consumes less than half as much oil as the US [please see my posts "Top 25 World Oil Consumers, 2009-2010 -- EIA." and "Top 21 World Oil Consumers, 2007-2010 -- BP," -- D.R.], but will overtake it in a matter of decades, said Wenran Jiang of the University of Alberta's China Institute [According to the BP Energy Outlook 2030, China is the largest source of oil consumption growth, with consumption forecast to grow by 8 million b/d a day to reach 17.5 million b/d by 2030, overtaking the US to become the world's largest oil consumer -- D.R.]. And like the US, China considers Canadian energy supplies to be vital to its security and economic growth.
About 80% of China's imports must pass through the Malacca Strait and its is keen to diversify supply chains away from vulnerable shipping lanes in Southeast Asia. [Also, please see my post "What is Beijing Willing to Do to Secure Oil and Gas Supplies?" and my post "China: Taking Oil Home," -- D.R.] [...]
While the US dithers over whether to embrace "dirty oil" [please see remarks below -- D.R.] from Canada, Chinese state-owned entities have been on a shopping spree, snapping up C$20 billion ($19.8 billion [sic]) worth of assets in less than two years and forming operating partnerships with Canadian firms for both oil sands and unconventional shale gas.
There is presently no way of shipping that oil to China, but there is a growing call in Canada to do just that.
Enbridge's proposed Northern Gateway pipeline to Canada's west coast is seen as a way of opening up overseas markets and gaining higher world oil prices. [Read more]
Source: U.S. Energy Information Administration (EIA), Today in Energy, Jun 14, 2011, here.
(Canadian oil producers have been clamoring for an outlet for their oil to reach the Gulf Coast, reliving a glut that's accumulated in Cushing, Oklahoma, where several pipeline routes terminate --- the delivery point for the West Texas Intermediate benchmark. The large amount of oil stranded in Cushing has led to a deep discount in crude-oil prices in the region and on the New York Mercantile Exchange. In March, the U.S. State Department delayed approval of the 1.1-million-barrel-a-day TransCanada Corp. Keystone XL pipeline expansion that would bring Canadian oil to the Gulf of Mexico. Environmental groups have raised objections about the possibility of oil spills. Alberta Energy Minister Ron Liepert called for the U.S. State Department to quickly approve the extension of a controversial oil pipeline to the U.S., adding that Canada has other potential customers for its oil. Canada is the biggest supplier of foreign oil to the U.S. but Minister Liepert said Canada is "actively cultivating" relationships with China and other emerging markets, where energy demand is growing rapidly---please see MarketWatch, May 16, 2011. In regard to environmental concerns surrounding oil sands production, Minister Liepert states, “We have been a leader in terms of initiatives around the environment. We have made significant advancement in tailings [Tailings are a mixture of fine clay, silt, sand, water and residual bitumen produced through oil sands extraction -- D.R.] management. Tailings are associated only with the mining operations, which is less than 50 per cent of the oil sands production now and continues to decline as a percentage of production.” He continues, “We have a 15 dollar per ton carbon tax, and most of the large operations in the oil sands fall under that. The tax goes into a clean energy fund. Alberta only has a population of 3.5 million people, but has invested $2 billion—probably the largest of any jurisdiction in the world—into carbon capture and storage.”---please see Energy Digital, Jun 14, 2011. -- D.R.)