If you’re in the Canadian Petroleum Industry, it’s hard not to get discouraged by recent news. Competitive disadvantages like Carbon taxes and over-regulation are diverting investment to friendlier jurisdictions like Texas. Politicians fail to appreciate the importance of petroleum energy, and apathetically stand aside as protestors pester pipeline projects to death. Infrastructure constraints have hurt the economics of landlocked areas as price differentials blow out due to transportation bottlenecks.
Despite the challenges, we should be aware that our oil industry has quietly helped bring about a momentous change to global oil trade.
I am referring to “North American Oil Independence”. This is the tipping point where the continent of North America (Canada, the US and Mexico) becomes completely self-sufficient in oil. US oil production has risen dramatically to nearly 10 million barrels of oil per day, a new all-time high. Due to the increasing oil and liquids production, net US oil imports have declined to about 4 million barrels of oil per day. Canada is by far the largest supplier to the US, growing to about 3.6 million bopd while Mexico contributes another 600,000 barrels per day. For the first time in many decades, North America no longer needs foreign dictatorships in the Middle East and elsewhere to keep its transportation fleet fueled. The key takeaway is that North America is now free of any threat of an oil embargo, as happened in the 1970s.
The graphic below, courtesy of BP, shows the big picture, and is worth looking at in detail:
Before we get into the balances, we should understand that all credible forecasters show an increase in worldwide oil demand through year 2035, of about one million barrels a day, every year. This is shown on the left side of the chart. Those that think we can reduce oil use or do away with it altogether should read the full “2017 Energy Outlook” report. It rationally explains why oil demand will go up rather than down, with more supporting information than can be presented in a short article.
Going back to the graphic above, the right side of the chart shows regional net imports, that had forecast North America would go positive a few years from now. Thanks to US oil shale drilling in prolific areas like the Texas Permian, that forecast has now been exceeded, achieving a surplus situation earlier than anyone thought possible. Canada made major contributions to the balance in the past, notably with oilsands projects, but future growth may be stifled due to the present toxic business environment.
There are huge benefits for American’s wealth and balance of trade, as they enjoy their reduced oil imports. One key benefit to the new geopolitical order will show up in military affairs. While America was dependent on foreign oil, they spent several trillion dollars to exert control on the countries that could export crude. US military personnel in the Middle East peaked at about 200,000, compared to approximately 25,000 this year. Tragically, more than 7000 lives (mostly US but some Canadian) were lost in the conflicts. Military actions, troop deployment and fatalities have all trended down along with the oil import numbers. We should all be very happy about that.
So now that America doesn’t need to wage war in the Middle East, who will take up the battle? Just look at the same chart to see the ominous rise in oil imports to Asia, and to a lesser extent in Europe. These are the regions that will have to mobilize to destroy ten-dollar tents with million-dollar ordinance. Sorry China, but it’s your turn.
Back here at home, we see the poster boy for the anti-oil lobby, BC Premier John Horgan, facing off against the spokesman for pipelines, Ian Anderson with Kinder Morgan. Both men have grown children, and I hope they both appreciate that the petroleum industry’s success may well be the reason their young adults don’t have to risk military service in foreign hellholes. Compared to that anxiety, their present frustrations should feel small in comparison.
Oil supertankers have been the flashpoint of disagreement between supporters and detractors of oil, so we should consider how that traffic has changed over the years. In 2005, North America needed about 15 supertankers per day to keep the continent fueled, both for bringing in imports and internally distributing oil around from producing areas to refineries. Going forward, all we need to do is the distributing part, plus extra merchant refining where it makes sense. The gulf coast, in particular, is doing a booming business bringing in about 5 million barrels of crude oil per day and selling the same amount of refined products to international customers.
In an ironic twist, the upstream oil industry has effectively reduced oil tanker traffic from the oceans surrounding North America. While environmental groups have scolded, picketed and trolled the internet, the innovative petroleum industry brought on new supplies with little support outside of their sector. This has sharply reduced transoceanic oil traffic and the corresponding risk of spills.
In light of this new balance then, why does Western Canada need a new pipeline to the west coast and more tanker loads to the Pacific? For the same reason that any industry needs efficient movement of goods, and multiple buyers for their product. With mid-continent pipelines stalled, alternate connections must be made between supply and demand. The Kinder Morgan project is the best way to influence better pricing by physically connecting Western Canadian oil to the Pacific market, even if it is only a million barrels of oil per day. The resulting revenue boost benefits all regions of Canada and all levels of government.
North Americans should be extremely proud of their petroleum sector for this remarkable achievement of independence, which will have a major impact on future peace and prosperity.
Larry Weiers has extensive experience in many areas of the energy sector. His most recent role before retiring was VP of Energy Technology and Innovation with a senior North American Integrated Petroleum Company. He has published an e-book titled “Sustainability of the Modern Human Economy”