Canadian oil could be trump card used in NAFTA renegotiations

KXL document underlines the U.S. need for crude, Claudia Cattaneo writes.

As part of posturing to extract better terms on NAFTA, President Donald Trump has warned Canada he’s unhappy with many aspects of the deal, including — and surprisingly — energy.

But a document by the U.S. State Department on the reasons behind his approval of the Keystone XL pipeline tells a different story: It shows deep appreciation for Canadian oil and for the friendship between the two countries.

“A more robust statement (by the U.S.) of the importance of oil from Canada you will seldom see,” said former Canadian ambassador to the United States Derek Burney, who has argued that Canadian energy has become so important to its southern neighbour it should be used by Canada as a trump card in the renegotiation of the North American Free Trade Agreement.

The 31-page Record of Decision and National Interest Determination on KXL was signed by Thomas A. Shannon, Jr., under secretary of state for political affairs, on March 23, the day before Trump handed TransCanada Corp. CEO Russ Girling a presidential permit to build KXL from Hardisty, Alta, to Steele City, Neb., to transport 830,000 barrels per day of predominantly Canadian oil to the U.S.

The document says Canada’s role as the largest and fastestgrowing source of U.S. crude imports “cannot be dismissed.”

The United States imported 3.17 million barrels a day of crude oil from Canada in 2016, which accounted for more than 43 per cent of total imports, it says.

U.S. domestic production growth from tight oil formations, which is predominantly light crude, continues to supplant the majority of international alternatives, but U.S. imports of Canadian crude oil are increasing and a growing share is reaching markets by rail, the document says.

“Canadian oil is a relatively stable and secure source of energy supply for many reasons, and few countries share all of the political or physical characteristics that enable Canada to remain in this position,” the document says.

“The Canadian oil sector is efficiently run, without undue political interference. Canadian oilsands projects have low production decline rates compared to conventional oilfields, providing greater geological certainty of future supply levels.

“Moreover, as the Canadian government’s conditional approval of the Trans Mountain pipeline illustrates, failure to approve new trans-boundary pipeline infrastructure may redirect this source of reliable supply to Asian markets.”

The department also says the project by itself is unlikely to significantly impact the level of greenhouse gas emission-intensive extraction of oilsands crude or the continued demand for heavy crude oil at U.S. refineries because the dominant drivers of oilsands development are more global than any single infrastructure project.

In its 2015 decision to reject the project, the same department found that approval at that time would have “undercut the credibility and influence of the United States in urging other countries to address climate change,” the document says.

But since then, there have been numerous developments related to global action to address climate change, including announcements by many countries of their plans to do so, the document says.

The document also says the U.S. State Department understands the importance of the project for Canada and places great significance on maintaining strong bilateral relations.

After nine years of regulatory reviews, KXL faces a final hurdle: the Nebraska Public Service Commission is holding its own assessment into the project’s route through the state and is expected to hand down a decision by Nov. 23.

The State Department document reflects many of the arguments made by Canada’s oil industry and by the previous Conservative government in support of the pipeline.

But there is an obvious problem with using Canadian oil and gas as a trump card in NAFTA — the current federal Liberal government is so invested in renewable energy it doesn’t put as much value on Canadian oil and gas as the U.S. does.