North American Energy Fosters Growth, Security

Mark Green
Posted March 7, 2017

Canadian Prime Minister Justin Trudeau’s recent visit to Washington, D.C., helps underscore the critically important trade relationship between the U.S. and Canada. Trade in energy leads the way, with Canada supplying more crude oil to the United States – an average of nearly 3.3 million barrels per day in 2016 – than any other country, according to the U.S. Energy Information Administration (EIA):

Trudeau and President Trump lauded the two countries’ energy relationship in a joint statement issued during the prime minister’s White House visit:

U.S.-Canada energy and environmental cooperation are inextricably linked, and we commit to further improving our ties in those areas.  We have built the world’s largest energy trading relationship.  We share the goals of energy security, a robust and secure energy grid, and a strong and resilient energy infrastructure that contributes to energy efficiency in both countries. … As the process continues for the Keystone XL pipeline, we remain committed to moving forward on energy infrastructure projects that will create jobs while respecting the environment.

We say all that to emphasize the way North American energy flows, between the U.S., Canada and Mexico – oil, natural gas, refined products and electricity – are generating significant consumer, economic and security benefits:

In particular, the North American energy market is progressing toward self-sufficiency in terms of liquid fuels, perhaps arriving in just a few years. According to EIA, the quantity of oil and other liquid energy sources produced by the three countries could outpace their liquid fuels consumption as soon as 2020. With liquid fuels production growing at a rate of 1 percent per year over the projection period while demand grows more slowly at 0.2 percent per year, supply can overtake demand, EIA figures (Table A21) show  – provided trade flows remain open.

Canada is especially important as a supplier of heavy crude oil, which sophisticated U.S. refineries in the Midwest and Gulf Coast regions are well-suited to process. Overall, U.S. oil production – much of it from shale, unlocked by safe hydraulic fracturing and horizontal drilling – has increased significantly, resulting in a decrease in crude imports from 9.2 million barrels per day in 2010 to 7.3 million barrels/day in 2015. Meanwhile, imports from Canada have increased 61 percent over the past five years. Imports from Mexico have decreased 57 percent since their peak in 2004 because of falling Mexican production. Overall, while U.S. oil imports have fallen, the share of imported crude from Canada and Mexico as a percentage of total U.S. imports has grown from 33.9 percent in 2010 to 52.4 percent in 2015:

The North American energy story also includes natural gas, refined products and electricity. We’ll discuss the last two in a future post. As for natural gas, the U.S. currently produces 90 percent of the natural as it uses, importing 97 percent of the rest from Canada, the world’s fifth-largest natural gas producer. 

Natural gas imports cost-effective for U.S. consumers in northern states, though those imports are declining – a trend that’s expected to continue as surging domestic production helps make U.S. gas more affordable. Still, the interconnectedness of the Canadian and U.S. natural gas markets translates into flexibility and reliability of supply – benefiting consumers.

The U.S. and Mexico natural gas markets are growing more connected, with U.S. pipeline export capacity expanding to 7.3 billion cubic feet per day and expected to nearly double in the next three years, according to EIA:

In addition, U.S. exports of liquefied natural gas (LNG) are reaching Mexican markets, with a little more than 7 Mcf of LNG shipped from Cheniere Energy’s Sabine Pass facility since February 2016. Energy reforms in Mexico, growth in power-sector demand, declining Mexican gas production and increasingly competitive U.S. gas are creating an opportunity for increased U.S.-Mexico energy trade.

All of the above argue for strong energy relationships between the U.S., Canada and Mexico – free of artificial impediments – that recognize the benefits in energy, economics and security that follow.