No matter who wins, CaNaDa loses

Don Alfaro knows Ohio could well decide the U.S. presidential election, but he is even more focused on what the election would mean for the promising Utica shale reserves that reside in his state.

“We have within our borders the ability and the technology to achieve what every president since the Nixon administration has set out to do, which is to move the U.S. toward energy security,” said the communications director of Energy In Depth — The Ohio Project, an industry website that tracks U. S. officials’ views on energy issues.

At stake is Ohio’s crucial 18 electoral votes, which pundits say would almost certainly clinch the presidency for Barack Obama as it would leave his challenger Mitt Romney the tough task of winning a raft of other undecided states. State polls show a dead heat, with Mr. Obama ahead within the margin of error.

And while some Ohioans are miffed at the president for abandoning the coal industry, the oiland-gas sector is heartened that he believes in fracking — a controversial method used to extract oil and gas — which is the key to unlocking the state’s Utica riches and generating more than 200,000 jobs.

Such debates are being played out across counties and states as the country’s hydrocarbons sector undergoes a radical transformation.

While ‘American energy security’ has been a clarion call in previous U.S. presidential elections, there is a very realistic chance the United States could achieve that elusive target in the coming decade.

Thanks to unconventional oil and natural gas, last year U.S. crude output rose to its highest level since 1998 and natural gas production hit a record high. The U.S. also became a net exporter of petroleum products for the first time in 49 years, and U.S. companies are planning to export natural gas to Europe and Asia.

All of this under a president who favours renewable energy.

“The Obama administration certainly didn’t create the oil-and-gas boom, but they haven’t tried to stop it either — despite calls from some core constituents to do so,” says Trevor Houser, a partner at research firm Rhodium Group.

Even though the Obama administration has pursued an “all-ofthe-above” energy policy, which includes all manner of fossil fuels, including clean coal, the president’s energy leanings can be summed up in two key policy decisions: supporting a solar company that went bankrupt, and initially rejecting the Alberta-to-Texas Keystone XL pipeline.

In contrast, his challenger, Mitt Romney, is more favourable to fossil fuels, although at the expense of renewable energy.

“I will permit access to our resources in the Gulf of Mexico, the Outer Continental Shelf, western lands and the Alaska National Wildlife Refuge,” said the Republican candidate, who cites energy policy as the first of his five-point economic strategy. “I also will partner closely with our neighbours. Canada and Mexico have extraordinary resources of their own that can provide secure, reliable supplies for our economy. This starts with my approval of the Keystone XL pipeline on Day One.”

Alberta oil producers may cheer Mr. Romney’s pledge to approve Trans- Canada Corp.’s KXL pipeline, but analysts say it could lead to a further widening of WTI-Brent differentials, which have already eroded profit margins for many Canadian producers.

“A Romney victory in November might increase the chances of the controversial Keystone XL pipeline being built, which would eventually pump even more oil into Cushing,” said Julian Jessop, head of commodities research at Capital Economics.

the obama administration certainly didn’t

create the oil-and-gas boom

Market observers blame surging supply from Canada into Cushing for the Western Texas Intermediate price discount, and the glut from the new pipeline would do little to elevate prices.

Such dichotomy highlights the complex energy debate in the U.S. and its direct impact on the Canadian oil-and-gas industry.

If Mr. Obama is re-elected he will owe the green movement for sticking with him even though he ignored environmental issues in the campaign, says Kenneth P. Green, an environmental scientist and resident scholar at the American Enterprise Institute.

“Does he reward them by stalling the pipeline even further or finding more reasons for extended review until the economics of the pipeline come unglued — that’s a distinct possibility. But ... he might feel he has a playing card in getting some other big reform.”

Ironically, it is Mr. Obama’s indifference to Canadian energy supply that spurred Alberta producers to invest more in long-haul logistics, which would ensure a prosperous Canadian sector.

Meanwhile, Mr. Romney’s plan to issue more oil and gas permits on federal lands could spell doom for Canadian energy. U.S. companies are reportedly among the major sellers of Canadian oil sands assets as they concentrate on cheaper opportunities on home turf, according to Peters & Co. research.

“That’s a real possibility if the U.S. really fast-track production,” Mr. Green says. “If U.S. crude oil production winds up consuming all of the U.S. surplus refining capacity, that would also be a reason to import less Canadian oil sands.”

However, Mr. Green, who contends Mr. Romney’s energy policies are ‘superior’, argues the same could happen under Mr. Obama.

“Even though President Obama’s policies have been quite anti-fossil fuels, his ability to actually implement them in a meaningful way has been quite limited. He has managed to slow things on federal lands and federal waters, but the surge in private and state lands has been such that production has been increasing over time.”

But Mr. Romney’s vociferous advocacy of the powerful oil-and-gas lobby has not necessarily translated into a winning formula, or indeed differentiated him enough from the president.

“The differences between the energy policies of U.S. president Obama and his equally worthy rival, Mitt Romney, are largely ones of rhetoric and emphasis rather than substance,” says Capital Economics’ Mr. Jessops. “Oil prices might fall a little more quickly under a Romney administration, but broader foreign and economic policy choices could be just as important as the specifics on energy and all should be trumped by the fragility of global demand.”

And while Mr. Romney’s supporters can almost feel the momentum swinging his way, Mr. Obama bested Mr. Romney in an energy poll conducted by the University of Texas on Oct. 16. The survey showed 37% voters prefer the president’s energy platform compared to 28% for his challenger. In the poll of a little more than 2,000 voters, the president had the approval of 48% of Libertarians and 27% of independents, compared to 21% and 23%, respectively, for Mr. Romney.

Even Canadians appear to have forgiven the president for spurning their pipeline. A Forum Research poll conducted for Canadian Busi

ness showed 65% of Canadians believe Mr. Obama would handle the economy better — only 18% of Canadians polled thought Mr. Romney would be a more competent captain of the U.S. economy.

But no matter who wins on Nov. 6, Canadian oil and gas producers are losing their market share amid a massive U.S. energy growth spurt.

“Increased oil production in the U.S. mid-continent will likely mean lower prices for Canadian producers and may prompt them to shelve some of the higher cost oil sands projects currently in the works,” Mr. Houser says.