US dependence on imported crude has been a topic of hot debate, both in the public and private sectors. As we come into an age where less than 27% of the petroleum consumed by the United States is imported from foreign countries, it is important to remain careful with the bridges built to energy independence.
As the total US crude import percentage has steadily decreased, the main suppliers have also traded hands. Around the beginning of the 21st century, the majority of crude imports came from OPEC and Persian Gulf countries. In our current energy landscape, Canada has taken over, providing US with 45% of US import share followed by 19% from Persian Gulf countries and the reaming percentage coming from other countries. This shift in allocation of resources has key implications for both countries.
While both hit hard by the downturn in oil prices, Canada has arguably had it worse. The play that contributes significantly to Canada’s share of oil exports is its oilsands. In February, Shell announced it would withdraw their application for their a new oil sands mine. Similarly, over 22 new LNG projects have also been cancelled due to the downturn. Right now the Canadian dollar only pays three quarters of the American dollar, a five year low for the exchange rate.
But does the shift in import share spell doom and gloom for both parties involved? Following the shale revolution, the US caught a glimpse of energy independence, skyrocketing US oil production to upwards of 10 MMbbl/day. This boost saw the lowest annual average of import consumption since 1985. Meanwhile Canada, providing almost 6% of the global energy supply, exported a whopping 98% of their energy resources to the US.
Why so much oil from Canada? It’s simple: location. While some imports come via railroads and oil tankers, the majority (65%) comes from networks of pipelines crawling down from the North. Both economies have recognized the idea of working smarter rather than harder. With an already strong trade relationship backed by NAFTA, further efforts are being put forth like the Regulatory Cooperation Council to make trade easier and more transparent. This energy relationship proves beneficial for both parties with a high value of return for Canada and a lower transportation and processing cost for the US.
However there are those that disagree with such policy reform to make trade more seamless. The US has already proven that it can survive without foreign dependence on crude. With the shutting in of light tight oil wells and reduction of megaprojects, the country will see a turnaround in oil prices and industry activity; it’s just a question of when. Even now, the average cost of oil production per barrel differs by less than five dollars between Canada and the US. Given Canadian economic diversity and the manufacturing industry’s ability to thrive under a weak dollar, their majority export of crude to the US is nothing more than convenient.
From the US side of the fence it is nothing more than a positive economic indicator. Although supply is forcing rig counts down and keeping prices low, the country is far from dependent on Canadian crude. It’s economic, it available, and it’s in house. US reserves will continue to lead to energy security for at least 25 years fighting off dependence on foreign crude supplies. This path of least resistance from Canadian markets to US markets is simply filling a temporary need, a trend to be welcomed as beneficial for both parties.