Infrastructure Pivotal for Vital U.S.-Canada Energy Relationship

Mark Green
Posted May 5, 2021

The United States’ energy relationship with Canada is vital to our economy (as well as Canada’s) and energy security – which makes the administration’s Day 1 cancellation of the Keystone XL pipeline and its omission of pipelines in its new infrastructure initiative look short-sighted.

A new U.S. Energy Information Administration (EIA) brief on U.S. crude oil imports underscores the importance of imported Canadian crude oil – in reducing U.S. reliance on imports from other suppliers and in filling the needs of U.S. refineries that are configured to process heavier crudes, including those from Western Canada.

EIA says between 2005 and 2020, U.S. crude imports from OPEC decreased rapidly, while imports from Canada more than doubled to average 3.6 million barrels per day (b/d) in 2020 – more than the combined total of crude imports from all other countries.

Especially important is heavy crude Canada supplies and the need for pipeline delivery systems to transport it – highlighted in this recent ICF report on U.S.-Canada cross-border petroleum trade.

Spurred by discounts on heavy crude grades, the report states, many U.S. refineries are equipped to transform heavy, high-sulfur crude oil into high-value end products. Canadian heavy crude accounted for more than half of total heavy crude oil supplied to them – oil that isn’t easily replaced with supply from other sources. More on that later.

The key point is Canadian crude oil is essential to parts of our economy, and we need to make sure there’s sufficient infrastructure to bring it here. That’s where the cancelled Keystone XL comes in. It would have expanded capacity to deliver heavy crude from Canada to the U.S. It would have been a safe, essential conduit for critically important Canadian crude oil into this country.

As ICF states in its report, there are few supply alternatives:

According to data from Stratas Advisors, the global heavy oil market totaled 11.4 million b/d in 2019. 12 This means that U.S. refinery demand at approximately 4.6 million b/d represented approximately 40% of the global heavy oil market, and Canadian production at 3.0 million b/d represented more than one-quarter of the total market. Furthermore, the global heavy oil market has grown more competitive as oil production declined approximately 7% to 8% from 2016 to 2019. 13 The inability of U.S. refiners to replace Venezuelan heavy oil barrels following the implementation of sanctions in 2019 is an indicator of the market’s competitiveness and the difficulty of finding alternative heavy oil supply sources.

This focus is even sharper amid reports that Ecuador, a supplier of heavy crude that sent 67.9 million barrels of crude to the U.S. in 2020, could be impacted by banks refusing to finance its trade in crude.

The narrowing of options for heavy crude oil supplies brings us back to Canada and how U.S. domestic politics could harm what has been a close, secure energy relationship. Canceling Keystone XL may have scored political points, but it was the wrong move for that U.S.-Canada energy relationship, our economy and energy security.

To be clear, the discussion is about more than just Keystone XL. There are other pipeline infrastructure projects supporting the U.S.-Canada energy relationship that are needed to deepen our energy ties with Canada – benefiting both countries’ economies and consumers – and to avoid further damaging cross-border relations. ICF:

U.S.-Canada trade in heavy crude oil is an interdependent relationship. … Continued growth in U.S.-Canada petroleum trade will further strengthen the economies of both countries and further enhance North American energy security. However, such growth in trade relies on the continued development and maintenance of cross-border infrastructure to facilitate the movement of energy commodities and further integration of the North American energy market.