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Canada makes its case
Canada’s Natural Resources Minister Jim Carr has assured a rattled Canadian oil and natural gas industry that he will do all in his power to build an energy-based trading relationship with the United States under President Donald Trump.
In Washington, D.C., for Trump’s inauguration he seized the chance to meet with a broad cross-section of U.S. lawmakers, government officials and industry executives in his efforts to find “points of intersection.”
Carr’s major selling point is that the U.S. receives about 98 percent of Canada’s oil and gas exports as part of a “very deep relationship which we have shared for a very long time.”
“I’m sure it’s in the interest of both countries to make sure that those links continue,” he said.
That thought was echoed Jan. 23 when Prime Minister Justin Trudeau’s cabinet held a retreat in Calgary and received a surprise visit from Steve Schwarzman, the chief executive officer of a private equity firm and an economic adviser to Trump, who had nothing but encouraging words for Canada.
“One of the important things is the unusually positive view that’s held of Canada (in the U.S.),” he said.
Asked what risks Canada might face if Trump introduces a border tax on imported goods, Schwarzman said that was a “very low” prospect.
“I don’t think (Trudeau) should be enormously worried because Canada is held in very high regard. We have balanced trade between the U.S. and Canada and is a model for the way that trade relations should be. That’s not the kind of situation where you should be worried,” he said in reiterating the same theme in several different ways.
Canada’s International Trade Minister Francois-Phillipe Champagne said Trudeau’s cabinet takes Schwarzman “at his word ... we had a great meeting with him. We you have someone like him who has known President Trump for decades you listen.”
3 million bpd Currently, Canada’s oil and natural gas shipments to the U.S. total about 3 million barrels per day and could rise to 5 million bpd over the next decade, but gas exports across the 49th Parallel have shrunk to 5 billion cubic feet per day from 9 bcf per day in 2007 mostly reflecting the surge in output from shale fields such as the Marcellus.
Genscape oil analyst Carl Evans said that even with crude prices hanging around US$50 heavy bitumen production has continued to grow to serve U.S. refineries which face shrinking imports from Mexico and Venezuela.
Keystone would help Canadian producers spend less on transport and could help them realize better prices for their crude products, Evans said.
What has Canadian producers on edge is how far Trump may go in adopting a border adjustment tax and scrapping the North American Free Trade Agreement.
Philip Verleger, principal of the Colorado-based consulting firm PKVerleger, said in a paper for The Brattle Group that no sector would be more affected by an import tax than petroleum, with exports from Canada, Mexico and the rest of the world facing a possible shut-out.
The tax reform strategy spearheaded by House Speaker Paul Ryan would punish those businesses that rely on imports by removing an existing write-off.
The best the government of Trudeau can hope for is that the Trump will acknowledge the jobs, taxes and contribution to U.S. energy security created by Canada’s heavy crude oil which is the major source of feedstock for refineries throughout the U.S.
Bewildering direction For now, though, the best Trudeau and his cabinet can do is remain poised to take advantage of the bewildering changes of direction in the White House including Trump’s pledges to nullify requirements for U.S. federal agencies to weigh climate change when handling pipeline applications and rescind an executive order dating back to President Lyndon B. Johnson that puts the State Department in charge of permitting oil pipelines that cross the Canada-U.S. border.
Andy Koenig, a vice president of policy at a donor organization tied to billionaires Charles and David Koch, expects Trump to wipe out barriers to economic growth and opportunities for all Americans and use revenues from oil and gas production to help finance new roads and bridges.
Jack Mintz, a fellow at the University of Calgary’s School of Public Policy, wrote in the Financial Post that the “most revolutionary change in modern energy markets has arguably been the growth in extraction of shale gas and oil over the past decade. It has given the United States a tremendous opportunity to refashion energy and foreign policy.”
But the opportunity was missed by Barack Obama “while he fixated on greenhouse gas emissions” and opted for symbolism by “pointlessly blocking pipelines like Keystone XL and Dakota Access,” passing up the chance to shift priorities away from the Middle East.”
Mintz said Trump appears to have realized a North American energy network that relies more on supplies from Canada and Mexico is achievable if he can unleash oil and gas development in the U.S. and approve both Keystone and Dakota.
A more robust North American energy sector, with Canadian oil substituting for Middle Eastern oil, could pull “fast-growing India and China into our economic orbit” and have a “profound impact on world political developments.”
- GARY PARK
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