Energy market diversification
Canada has diverse energy resources that are spread across the country including oil, natural
gas, coal, biofuels, and uranium as well as electricity generation opportunities. It is now the fifth
largest energy producer globally and one of the few developed nations that are net energy
exporters.1 Currently nearly all of Canada’s energy exports are to the United States, missing a
chance to access global markets. Diversification of Canada’s energy markets can create new jobs
and economic growth from building infrastructure, improving energy security and helping to
obtain maximum value from resource production and to increase value-added upgrading.
Canada’s energy industry is vital to the country’s economy, representing about 7 per cent of
GDP, 23 per cent of exports and employing 260,000 people.2 The industry contributes taxes and
royalties to governments and is a backbone of the economy, providing competitively priced fuel
for transportation and power for business operations.
Despite the country’s strong energy production and export opportunities, Canada remains a
regional player. Right now Canadian energy exporters essentially have one customer, the United
States. This relationship has naturally occurred due to geographic proximity, a shared marketoriented approach, economic integration and friendly political relations. It has resulted in an
integrated market with energy flows both ways between the two countries.
In 2010, Canadian energy exports contributed $94 billion to the economy with the majority from
crude oil, petroleum, coal and natural gas exports.3 Almost all of Canada’s oil exports, and all
natural gas exports, headed to the US via pipeline. In 2010, Canada exported about $2 billion in
electricity to the US, the majority from low cost hydro-producing provinces.
At the same time, Canada also imports energy from the United States. In 2010, about $40 billion
was imported including natural gas, liquefied natural gas and crude. These imports occur
because domestic supplies are inaccessible or are at a higher cost than what is available
internationally.
Interprovincial energy trade is also an important part of Canada’s overall energy system. These
relationships are complex and have evolved from market forces and provincial/territorial
energy policy. For crude oil, connections between western Canada run until Ontario, with
Quebec and Atlantic Canada lacking adequate pipeline capacity. Numerous projects are now
being contemplated to rectify this situation. For natural gas, the mainline pipeline links BC
through to Quebec; however, the increase in US shale production is reducing line volume. For
electricity, the provinces trade less with each other than with the US. Although there are some
interprovincial interties, unlike the United States, there is no significant grid system. An
opportunity exists to improve the pan-Canadian energy trading relationship as part of the
broader diversification drive.
1
Energy Policy Institute of Canada. A Strategy for Canada’s Global Energy Leadership. July 2011.
Natural Resources Canada. Canada as a Global Energy Leader: Toward Greater Pan-Canadian Collaboration.
July 18, 2011.
3
National Energy Board. Canadian Energy Overview 2010. July 2011.
2
Changing market dynamics are forcing Canadian energy producers to look beyond North
America. Growing Canadian oil production, coupled with slow US demand growth, has created
opportunities to feed faster growing parts of the world, particularly the Asia-Pacific region.
While the US will remain an important and valued customer, new export options could secure
higher prices for Canada’s resources.
For oil, pipeline constraints in the US Midwest have created a divergence of the North American
oil price (West Texas Intermediate or WTI) to the offshore world price (Brent). In 2011, this
differential averaged US $17 per barrel,4 costing billions in lost revenue for producers and
significantly less taxes and royalties for governments. The National Energy Board expects this
spread to decline as new infrastructure is built between the US Midwest and the Gulf Region.
However, this approach adds market risk for Canadian energy producers who become at the
mercy of foreign government pipeline approvals. Opening new markets provides producers with
the flexibility to potentially access higher offshore prices (Brent), and reduce political risk
associated with having only one consumer.
On the gas side, prolific shale gas plays have more than doubled gas resources in the US, leaving
more than 100 years of supplies at current production levels.5 Moving forward the US is
projected to be a net exporter of liquefied natural gas (LNG) in 2016 and a net pipeline exporter
in 2025.6 US production is booming because its shale plays have a cost advantage over Canadian
producers with lower drilling and transportation costs. The market diversification case for
natural gas is even more compelling. In 2011, North American natural gas prices averaged US
$4.04/MMBtu (NYMEX).7 Strong demand in Asia-Pacific countries such as Japan, South Korea
and Taiwan has created opportunities to obtain higher liquefied natural gas prices of between
$12-18/MMBtu. Again, billions are at stake for producers across Western Canada from this
differential.
For electricity the market diversification opportunities are different from oil and gas. It is not
feasible to export electricity other than to the United States. Here the opportunity is to increase
exports of low carbon power to the US as it moves to secure less greenhouse gas emitting power
sources. There is also an opportunity and improve interprovincial interties across Canada where
prudent. A significant barrier to greater interprovincial electricity transportation is that
provinces/territories have essentially created self-contained markets, with different approaches
including crown corporations, market-based pricing systems serviced by private sector, or other
variants. The greatest challenge to increasing interprovincial electricity trade is the patchwork
of approaches and lack of transparency of pricing.
4
National Energy Board. Annual Report 2011 to Parliament.
U.S. Department of Energy, Modern Shale Gas Development in the United States : A Primer, accessed March 2011
http://fossil.energy.gov/programs/oilgas/publications/naturalgas_general/ShaleGasPrimer_Online_4-2009.pdf
5
6
7
US Energy Information Administration. EIA issues AEO2012 Early Release. January 23, 2012.
National Energy Board. Annual Report 2011 to Parliament.
Recommendations
That the federal government works with the provinces and territories to:
1.
Support the development of key energy infrastructure to improve Canada’s access to global
energy markets and increase west-east oil trade flows within the country.
2.
Develop a pan-Canadian policy framework that improves the development of an
environment that fosters an increasing share of the processing of natural resources to value
added products while being mindful of market forces.
3.
Explore opportunities to enhance interprovincial electricity trade by improving
transparency of provincial and territorial pricing.
4.
Encourage US decision-makers to a further integrate Canada’s hydroelectricity as a low
cost, low emissions power source.
5.
Continue to improve the regulatory review process to ensure it is timely, efficient and
effective.
co--sponsored by the Calgary
Submitted by the Sarnia Lambton Chamber of Commerce and co
Chamber of Commerce