Connect with us

Canada News

Trump’s threats reveal the trouble with Canada’s pipelines running through the U.S.

Published

on

By Evan Dyer, CBC News, RCI

The Westridge Marine Terminal at the Port of Vancouver handles crude oil exports to global markets. If Canada were to avoid pipelines that run through U.S. territory, the Trans Mountain Expansion is the best of the country’s limited options. (Gian Paolo Mendoza/CBC) Photo: (Gian Paolo Mendoza/CBC)

Interconnectedness is a double-edged sword and Canada is vulnerable in any trade war

Continental energy security was the watchword of both governments and industry for much of the past quarter century in North America: the idea that by linking the U.S. and Canada in a tight web of pipelines and refineries, both countries would protect themselves from threats and hostile trade actions that — it was assumed — would come from outside North America.

The website of the Canadian Association of Petroleum Producers is still littered with references (new window) to the now-obsolete notion that increasing interdependence with the U.S. would make Canada safer: Over the past decade, Canada has strengthened its continental energy security by reducing reliance on overseas oil and increasing the share of imports from the United States.

Too late did Canada realize that the threat would come from inside the house — that Americans would elect a president who saw Canada not as a partner, but as a target for extortion and even annexation (new window).

An oil refinery in Sarnia.

Alberta can supply the volume of oil Sarnia, Ont., needs for its refineries. But that oil flows through pipelines that cut through the U.S. Photo: Radio-Canada / Elvis Nouemsi Njiké

In the days when the Enbridge mainline (new window) was being laid down, talk of trying to keep infrastructure within Canada was dismissed as expensive and unnecessary, said oil market analyst Rory Johnston, founder of the Commodity Context newsletter and a lecturer at the University of Toronto’s Munk School of Global Affairs.

If it’s easier to push a pipeline through the U.S. border, if it’s cheaper, if there’s less political blowback than going through B.C. or Quebec, well it was a no-brainer, because the United States, our closest ally through all of history, would never impose a punitive tariff on us. That’s crazy talk.

And yet here we are.

All eggs in one basket

There was never serious consideration to the reverse of that, Johnston told CBC News. No other oil exporter on the planet has the same kind of built-in constraints.

Had they foreseen the rise of MAGA, says Johnston, no industry in its right mind would have created this kind of dependence on the U.S. market.

Ironically, the very pipelines built in the name of continental energy security are now potential weapons in a trade war between the two erstwhile allies.

American reliance on Canadian heavy crude is the most powerful economic weapon in Canada’s arsenal. But the same network also gives the U.S. leverage over Canada.

Were Canada ever to reach for its nuclear option — placing export tariffs on Canadian energy or even threatening to cut off supply — it would risk shortages of crude and refined fuels in other regions of the country.

‘A very extreme move’

Calgary-based energy security analyst Joe Calnan said such a move would certainly put pressure on the U.S.

“It’s going to be very, very difficult (new window) for the United States to replace Canadian heavy oil supply,” he said.

But there’s a question of whether it’s going too far. We need to be frank here that this would be a very extreme move to actually cut off oil. And we should anticipate a very strong political response from the United States if that ends up being the path we go down.

The key point of Canadian vulnerability begins in Gretna, Man., where the Enbridge main pipeline carrying Albertan oil east crosses into the U.S. In Superior, Wis., the line bifurcates, with most of the crude continuing south to the huge refining hub around Chicago. Line 5 swings east, across the U.S. part of Lake Superior, and then across Michigan until it re-enters Canada to end at the refining hub of Sarnia, Ont.

Calnan says the U.S. has the technical ability to shut off the flow of Western Canadian oil to Ontario.

When much of Canada's oil pipelines were installed, the concept of 'continental energy security' seemed much more secure than it does now.

When much of Canada’s oil pipelines were installed, the concept of ‘continental energy security’ seemed much more secure than it does now. (Rob Kruk/CBC) Photo: (Rob Kruk/CBC)

About half a million barrels of oil travel through Line 5 every day. Another half-million reach Sarnia from Pontiac, Ill., through Line 78, some of it heavy crude from Alberta, and some light crude from North Dakota.

Alberta can supply the volume of oil Sarnia needs. The problem would be getting it there without Line 5 or Line 78. Replacing that with trucks or rail is a big challenge, said Calnan, adding that safety measures implemented after the Lac-Mégantic train disaster (new window) have made it even more difficult to move oil by rail.

I’m not saying that it’s completely impossible, said Calnan, but it would be very expensive.

Rules no longer matter

Closing flow through Lines 5 and 78 to Sarnia would violate the 1977 Canada-U.S. Pipeline Treaty, which binds each country not to impede the flow of the other country’s oil through its national territory.

But some experts believe that would matter little to Trump.

The imposition of tariffs is itself a violation of [CUSMA], said Johnston. So I think the rules are off. And I think the concrete geopolitics of Albertan crude having to pass through the U.S. in order to get to Sarnia is a very real constraint.

Sarnia’s refineries already narrowly avoided shutdown when the State of Michigan in 2020 sought to have Line 5 closed (new window) for environmental reasons.

Both Enbridge and the Government of Canada counter-sued, the latter citing the 1977 treaty (new window), and the pipeline stayed open. But it was an early wake-up call to Central Canada’s vulnerability.

Ontario the most vulnerable

Atlantic Canada is protected by being separated from the main North American oil network. Johnston says Quebec refineries would face challenges, but could probably bring offshore oil from the east.

But Ontario would be Canada’s Achilles heel in any oil war, says Johnston.

Line 9 (new window), which flows east from Sarnia to refineries in the Montreal area, could become critical in a real trade war with the U.S.

The 832-kilometre pipeline encapsulates the history of Canada-U.S. mutual dependency. When it started operations in 1976, it carried Alberta oil east. Twenty years later, the economics were changing and there were fears that North American oil would run out. So in 1998 the flow was reversed; now the pipeline would carry overseas crude — shipped by tankers — from the Port of Montreal to Sarnia.

But a decade after that, the U.S. shale oil boom began, and fears of scarcity evaporated. Now continental energy security was in, OPEC oil was out and in 2012 Line 9 switched back to west-east.

By reversing flow a third time, Canada could potentially mitigate the effects of a shutdown of Line 5 and 78, buying oil overseas and importing it in tankers.

But those would be drastic and expensive measures, and Johnston says Ontario could still expect at least short-term shortages.

Shortages at the gas pump

Indeed, the problem is not merely oil, but rather the main finished products made from oil: gasoline and diesel.

Canada uses about 2.4 million barrels of oil a day, but only has the domestic capacity to refine about 1.9 million. It would be complicated to source the half-million barrels of refined product from overseas.

The refining gap is another reminder of Canada’s vulnerability as a one-time partner turns unpredictable and unreasonable, and an additional reason, say the experts, why Canada should try to avoid an all-out oil supply war and instead focus on lessening Canada’s long-term exposure to U.S. attempts to extort concessions.

That means new pipelines to new markets — an idea that is rapidly gaining ground (new window) after years of stalemate.

Without the Trans Mountain Expansion (TMX) that can carry about 900,000 barrels of Alberta crude to the Port of Vancouver, says Johnston, we would be in a whole world of hurt right now, even before the tariffs hit.

TMX, which began operating in May and has given Albertan oil an outlet to Asian markets, has brought the price “differential (new window)” on Alberta oil (the discount demanded by U.S. refiners to handle heavy, sour crude rather than light, sweet crude) to a historic low.

TMX came just in time

We would probably be back at $25, almost $30-a-barrel differentials today even without the tariffs if we didn’t have TMX, Johnston told CBC News. The Trudeau government deserves some credit for building that pipeline, he says, but it’s hard to argue that Ottawa really went to bat for the oilpatch.

My hope is that this has recentred the strategic value of Western Canadian production in the minds of Eastern Canadians, in the minds of politicians in Ottawa to understand there has to be some give and take. Maybe there is some grand east-west bargain that can be reached.

The oil tanker Pacific Jade is seen leaving the Port of Vancouver. Alberta oil shipped from B.C. has opened up Asian markets to Canada.

The oil tanker Pacific Jade is seen leaving the Port of Vancouver. Alberta oil shipped from B.C. has opened up Asian markets to Canada. (Ben Nelms/CBC) Photo: Radio-Canada / Ben Nelms

That bargain involves committing to give Alberta new pipelines in exchange for Alberta agreeing to take a hit in any trade war with the Trump administration.

In the short term, says Calnan, TMX could probably provide more relief to Alberta producers.

I believe they can de-bottleneck a few hundred thousand barrels per day of additional capacity. I don’t think that would take very long. You’d want to increase the number of pump stations along it, increase the pressure. You could also do some dredging operations so you can fill the ships a bit more, he said.

You can unlock that pretty easily if there’s real political will.

In the long run, though, Calnan says Canada should both add new capacity to TMX and revive the Energy East pipeline project that would allow Alberta oil to flow to Ontario without ever leaving Canada.

As a quid pro quo, he says, Ottawa could ask Alberta to do something it already did in 2018 (new window) in response to brutal price differentials on Canadian oil at U.S. refineries: curtail (but not cease) production.

Curtailment was widely supported in the oil patch, and though introduced under the NDP government of Rachel Notley, the policy was then maintained by Jason Kenney.

Alberta heavy crude at one point became almost worthless, but prices climbed back and differentials steadily decreased to where they are today — mostly under $10 a barrel. (The differential has fluctuated in recent days as markets have reacted to Trump’s contradictory public musings.)

Don’t try to fight on two fronts

Johnston says Ottawa should avoid a two-front war against both the United States and Alberta, and seek instead a political agreement where Alberta agrees to short-term pain in return for long-term gain in the form of new pipelines that will also make the whole country less vulnerable to Trump’s extortion.

The way this conversation has already gone has really entrenched people in their positions. And I think we were already off to a very unproductive start, he said.

WATCH | What would a trade war look like?:

Début du widget Widget. Passer le widget ?
Fin du widget Widget. Retourner au début du widget ?

What would a Canada-U.S. tariff war actually look like? | About That

Canada is responding to U.S. President Donald Trump’s threat of massive tariffs on Canadian imports with retaliatory tariffs of its own. Andrew Chang explains how tariffs — and a possible trade war — could impact the economy, businesses, and consumers both north and south of the border. Images gathered from Reuters, Getty Images, and The Canadian Press.

In the event that Trump tariffs Canadian oil, he says, Canada should respond by reducing supply by about 300,000 barrels — an action similar to the 2018 curtailment — while focusing on freeing Canada in the longer term from over-dependency on a neighbour that can no longer be considered a reliable partner.

There has been recent talk (new window) of restarting Northern Gateway, but the idea has been played down by Enbridge itself. Spokesperson Jesse Semko told CBC News this week that the company has no plans to revisit it.

Nothing would prevent governments from taking on the project, but Johnston says the payoff would be many years away.

It’s probably simpler to add an additional kind of twinning or tripling on TMX than to go through an entire new siting of Northern Gateway, he said. I think the long and short of it is either a pipeline to the West Coast or a pipeline to the East Coast. Or more realistically both.


This article is republished from RCI.

Continue Reading
Click to comment

Leave a Reply

Your email address will not be published. Required fields are marked *

Maria in Vancouver

Lifestyle2 days ago

The Tea on Vancouver’s Dating Scene

Before Maria in Vancouver met The Last One seven years ago and even long before she eventually married him (three...

Lifestyle1 month ago

How I Got My Groove Back

Life is not life if it’s just plain sailing! Real life is all about the ups and downs and most...

Lifestyle1 month ago

Upgrade Your Life in 2025

It’s a brand new year and a wonderful opportunity to become a brand new you! The word upgrade can mean...

Maria in Vancouver2 months ago

Fantabulous Christmas Party Ideas

It’s that special and merry time of the year when you get to have a wonderful excuse to celebrate amongst...

Lifestyle2 months ago

How To Do Christmas & Hanukkah This Year

Christmas 2024 is literally just around the corner! Here in Vancouver, we just finished celebrating Taylor Swift’s last leg of...

Lifestyle3 months ago

Nobody Wants This…IRL (In Real Life)

Just like everyone else who’s binged on Netflix series, “Nobody Wants This” — a romcom about a newly single rabbi...

Lifestyle3 months ago

Family Estrangement: Why It’s Okay

Family estrangement is the absence of a previously long-standing relationship between family members via emotional or physical distancing to the...

Lifestyle5 months ago

Becoming Your Best Version

By Matter Laurel-Zalko As a woman, I’m constantly evolving. I’m constantly changing towards my better version each year. Actually, I’m...

Lifestyle5 months ago

The True Power of Manifestation

I truly believe in the power of our imagination and that what we believe in our lives is an actual...

Maria in Vancouver6 months ago

DECORATE YOUR HOME 101

By Matte Laurel-Zalko Our home interiors are an insight into our brains and our hearts. It is our own collaboration...