Presidential Column

A startling and controversial announcement was recently made by the International Energy Agency (IEA). They predict that the United States will overtake Saudi Arabia and Russia as the world’s top oil producer by 2017, thus predicting that Washington will come very close to achieving their previously unthinkable goal of energy self-sufficiency.

The forecasts by the IEA, which advises large industrialized nations on energy policy, were in sharp contrast to previous IEA reports, which predicted Saudi Arabia remaining the top producer until 2035.

“Energy developments in the United States are profound and their effect will be felt well beyond North America – and the energy sector,” the IEA said in its annual long-term report, giving one of the most optimistic forecasts for U.S. energy production growth to date.

“The recent rebound in U.S. oil and gas production, driven by upstream technologies that are unlocking light tight oil and shale gas resources, is spurring economic activity – with less expensive gas and electricity prices giving industry a competitive edge,” it added.

The IEA said it saw a continued fall in U.S. oil imports with North America becoming a net oil exporter by around 2030 and the United States becoming almost self-sufficient in energy by 2035.

“The United States, which currently imports around 20 percent of its total energy needs, becomes all but self-sufficient in net terms – a dramatic reversal of the trend seen in most other energy importing countries,” it said.

IEA Chief Economist Fatih Birol said at a news conference in London he believed the United States would overtake Russia as the biggest gas producer by a significant margin by 2015 and by 2017, and it would eventually become the world’s largest oil producer, he said.

The United States will rely more on natural gas than either oil or coal by 2035 as cheap domestic supply boosts demand among industry and power generators, the IEA said.

This is not good news for the Canadian oil and gas industry. We already receive about $30 per barrel less for our crude bitumen than what the US turns around and sells it for. At about 1.5 million barrels of oil per day this can add up to significant losses for Canada. The idea of refining our own bitumen here in Canada is a controversial one. Even with upgrading we would still need to find a market and pipeline capacity. Furthermore, the existing refineries in the Midwest and gulf coast are already well set up for that.

As mentioned in one of my previous articles, our pipeline expansion prospects don’t seem to be moving forward with any certainty. A federal decision is expected shortly on TransCanada’s controversial Keystone XL pipeline expansion, which would enable significantly more oilsands crude to flow south of the border.

While the Keystone pipeline is important for feeding the heavy oil refinery demands of the Gulf coast, it is important for Canada to open up markets to the east.

The IEA report forecasts global energy needs will increase by 33% by 2035, with 60 per cent of the additional demand coming from China, India and the Middle East.

However, our government is sending mixed signals sayings things like “Open for business” but then delaying significant foreign investment, as seen with the delays in the CNOOCNexen deal and the Petronas–Progress deal. The guidelines for foreign investment should be clear and concise so that foreign investors know and understand the rules and most importantly that Canadian values, such as human rights, are preserved.

With regards to opening up non-US markets, there are currently two pipeline proposals in the works—Enbridge’s Northern Gateway and Kinder Morgan’s Trans Mountain expansion—to connect growing Canadian supplies to Asia via West Coast export terminals. Supporters of West Coast oil pipelines call those projects nation-building undertakings of the same magnitude as the national railway that would bring substantial economic benefits to Canada.

But the idea of shipping crude by pipeline through British Columbia’s mountainous terrain and then by super tanker through coastal waters has not been sitting well with many, particularly those in B.C. There are fears a spill could cause dire environmental harm, and dozens of B.C. First Nations groups have said there are no circumstances under which they would allow an oil pipeline to cross their land.

As an alternative to the controversial West Coast projects, Enbridge and TransCanada are looking east. Both have plans in the works to send crude to Ontario and Quebec, with the possibility of eventually exporting crude through various points in the Atlantic basin.

In 2011 Canada supplied the United States with about 2.4 million barrels per day, or 29 per cent of its net oil imports, according to the U.S. Energy Information Administration. The next-biggest supplier on that list was Saudi Arabia, with about 1.2 million barrels a day, or 14 per cent, followed by Venezuela, Nigeria and Mexico.

However, it is important to realize that there is a big difference between the U.S. being oil independent and being energy independent. Energy is all-inclusive—coal, nuclear, petroleum, wind, solar, hydro, etc.

Again, the rub is that refinery complexes in the U.S. Midwest and U.S. Gulf Coast are geared to run heavy crude and are increasingly looking for Alberta supplies to supplant declining ones from Mexico and Venezuela. There’s a chance that the U.S. wil find itself in a situation where based on the current refinery setup, that there is a surplus of light sweet.

Canada has a giant natural resource base and limiting our trading partners, either through politics or pipelines (probably the same thing), to the US is probably a bad idea. Wellconstructed and maintained pipelines going east, west and south will ensure Canada has many options for getting the best bang for a barrel.