“Continental vitality safety” was the watchword of each governments and trade for a lot of the previous quarter century in North America: the concept by linking the U.S. and Canada in a decent internet of pipelines and refineries, each international locations would defend themselves from threats and hostile commerce actions that — it was assumed — would come from exterior North America.
The web site of the Canadian Affiliation of Petroleum Producers remains to be littered with references to the now-obsolete notion that growing interdependence with the U.S. would make Canada safer: “Over the previous decade, Canada has strengthened its continental vitality safety by decreasing reliance on abroad oil and growing the share of imports from the US.”
Too late did Canada understand that the menace would come from inside the home — that Individuals would elect a president who noticed Canada not as a accomplice, however as a goal for extortion and even annexation.
Within the days when the Enbridge mainline was being laid down, speak of making an attempt to maintain infrastructure inside Canada was dismissed as costly and pointless, mentioned oil market analyst Rory Johnston, founding father of the Commodity Context e-newsletter and a lecturer on the College of Toronto’s Munk Faculty of World Affairs.
“If it is simpler to push a pipeline by way of the U.S. border, if it is cheaper, if there’s much less political blowback than going by way of B.C. or Quebec, effectively it was a no brainer, as a result of the US, our closest ally by way of all of historical past, would by no means impose a punitive tariff on us. That is loopy speak.”
“And but right here we’re.”
All eggs in a single basket
“There was by no means critical consideration to the reverse of that,” Johnston advised CBC Information. “No different oil exporter on the planet has the identical form of built-in constraints.”
Had they foreseen the rise of MAGA, says Johnston, “no trade in its proper thoughts would have created this sort of dependence on the U.S. market.”
Satirically, the very pipelines constructed within the identify of continental vitality safety are actually potential weapons in a commerce conflict between the 2 erstwhile allies.
American reliance on Canadian heavy crude is probably the most highly effective financial weapon in Canada’s arsenal. However the identical community additionally provides the U.S. leverage over Canada.
Had been Canada ever to achieve for its “nuclear choice” — inserting export tariffs on Canadian vitality and even threatening to chop off provide — it might threat shortages of crude and refined fuels in different areas of the nation.
‘A really excessive transfer’
Calgary-based vitality safety analyst Joe Calnan mentioned such a transfer will surely put stress on the U.S.
“It’ll be very, very difficult for the US to exchange Canadian heavy oil provide,” he mentioned.
“However there is a query of whether or not it is going too far. We have to be frank right here that this could be a really excessive transfer to truly reduce off oil. And we must always anticipate a really sturdy political response from the US if that finally ends up being the trail we go down.”
The important thing level of Canadian vulnerability begins in Gretna, Man., the place the Enbridge predominant pipeline carrying Albertan oil east crosses into the U.S. In Superior, Wis., the road bifurcates, with many of the crude persevering with south to the large refining hub round Chicago. Line 5 swings east, throughout the U.S. a part of Lake Superior, after which throughout Michigan till it re-enters Canada to finish on the refining hub of Sarnia, Ont.
Calnan says the U.S. has the technical means to close off the movement of Western Canadian oil to Ontario.
About half 1,000,000 barrels of oil journey by way of Line 5 day by day. One other half-million attain Sarnia from Pontiac, Unwell., by way of Line 78, a few of it heavy crude from Alberta, and a few gentle crude from North Dakota.
Alberta can provide the amount of oil Sarnia wants. The issue could be getting it there with out Line 5 or Line 78. “Changing that with vans or rail is a giant problem,” mentioned Calnan, including that security measures applied after the Lac-Mégantic train disaster have made it much more tough to maneuver oil by rail.
“I am not saying that it is fully not possible,” mentioned Calnan, “however it might be very costly.”
Guidelines not matter
Closing movement by way of Strains 5 and 78 to Sarnia would violate the 1977 Canada-U.S. Pipeline Treaty, which binds every nation to not impede the movement of the opposite nation’s oil by way of its nationwide territory.
However some specialists consider that might matter little to Trump.
“The imposition of tariffs is itself a violation of [CUSMA],” mentioned Johnston. “So I feel the principles are off. And I feel the concrete geopolitics of Albertan crude having to cross by way of the U.S. so as to get to Sarnia is a really actual constraint.”
Sarnia’s refineries already narrowly averted shutdown when the State of Michigan in 2020 sought to have Line 5 closed for environmental causes.
Each Enbridge and the Authorities of Canada counter-sued, the latter citing the 1977 treaty, and the pipeline stayed open. Nevertheless it was an early wake-up name to Central Canada’s vulnerability.
Ontario probably the most weak
Atlantic Canada is protected by being separated from the primary North American oil community. Johnston says Quebec refineries would face challenges, however might in all probability carry offshore oil from the east.
However Ontario could be Canada’s Achilles heel in any oil conflict, says Johnston.
Line 9, which flows east from Sarnia to refineries within the Montreal space, might change into crucial in an actual commerce conflict with the U.S.
The 832-kilometre pipeline encapsulates the historical past of Canada-U.S. mutual dependency. When it began operations in 1976, it carried Alberta oil east. Twenty years later, the economics had been altering and there have been fears that North American oil would run out. So in 1998 the movement was reversed; now the pipeline would carry abroad crude — shipped by tankers — from the Port of Montreal to Sarnia.
However a decade after that, the U.S. shale oil increase started, and fears of shortage evaporated. Now “continental vitality safety” was in, OPEC oil was in and out 2012 Line 9 switched again to west-east.
By reversing movement a 3rd time, Canada might doubtlessly mitigate the consequences of a shutdown of Line 5 and 78, shopping for oil abroad and importing it in tankers.
However these could be drastic and costly measures, and Johnston says Ontario might nonetheless anticipate “not less than short-term shortages.”
Shortages on the gasoline pump
Certainly, the issue is just not merely oil, however reasonably the primary completed merchandise produced from oil: gasoline and diesel.
Canada makes use of about 2.4 million barrels of oil a day, however solely has the home capability to refine about 1.9 million. It could be sophisticated to supply the half-million barrels of refined product from abroad.
The refining hole is one other reminder of Canada’s vulnerability as a one-time accomplice turns unpredictable and unreasonable, and an extra cause, say the specialists, why Canada ought to attempt to keep away from an all-out oil provide conflict and as a substitute deal with lessening Canada’s long-term publicity to U.S. makes an attempt to extort concessions.
Meaning new pipelines to new markets — an thought that’s rapidly gaining ground after years of stalemate.
With out the Trans Mountain Enlargement (TMX) that may carry about 900,000 barrels of Alberta crude to the Port of Vancouver, says Johnston, “we’d be in a complete world of harm proper now, even earlier than the tariffs hit.”
TMX, which started working in Might and has given Albertan oil an outlet to Asian markets, has introduced the value “differential” on Alberta oil (the low cost demanded by U.S. refiners to deal with heavy, bitter crude reasonably than gentle, candy crude) to a historic low.
TMX got here simply in time
“We’d in all probability be again at $25, virtually $30-a-barrel differentials as we speak even with out the tariffs if we did not have TMX,” Johnston advised CBC Information. The Trudeau authorities deserves some credit score for constructing that pipeline, he says, “nevertheless it’s onerous to argue that Ottawa actually went to bat for the oilpatch.”
“My hope is that this has recentred the strategic worth of Western Canadian manufacturing within the minds of Japanese Canadians, within the minds of politicians in Ottawa to know there must be some give and take. Perhaps there’s some grand east-west cut price that may be reached.”
That cut price entails committing to present Alberta new pipelines in change for Alberta agreeing to take a success in any commerce conflict with the Trump administration.
Within the quick time period, says Calnan, TMX might in all probability present extra reduction to Alberta producers.
“I consider they’ll de-bottleneck just a few hundred thousand barrels per day of further capability. I do not suppose that might take very lengthy. You’d wish to enhance the variety of pump stations alongside it, enhance the stress. You would additionally do some dredging operations so you may fill the ships a bit extra,” he mentioned.
“You’ll be able to unlock that fairly simply if there’s actual political will.”
In the long term, although, Calnan says Canada ought to each add new capability to TMX and revive the Power East pipeline venture that might enable Alberta oil to movement to Ontario with out ever leaving Canada.
As a quid professional quo, he says, Ottawa might ask Alberta to do one thing it already did in 2018 in response to brutal worth differentials on Canadian oil at U.S. refineries: curtail (however not stop) manufacturing.
Curtailment was broadly supported within the oil patch, and although launched beneath the NDP authorities of Rachel Notley, the coverage was then maintained by Jason Kenney.
Alberta heavy crude at one level turned virtually nugatory, however costs climbed again and differentials steadily decreased to the place they’re as we speak — largely beneath $10 a barrel. (The differential has fluctuated in current days as markets have reacted to Trump’s contradictory public musings.)
Do not attempt to battle on two fronts
Johnston says Ottawa ought to keep away from “a two-front conflict in opposition to each the US and Alberta,” and search as a substitute a political settlement the place Alberta agrees to short-term ache in return for long-term acquire within the type of new pipelines that will even make the entire nation much less weak to Trump’s extortion.
“The best way this dialog has already gone has actually entrenched folks of their positions. And I feel we had been already off to a really unproductive begin,” he mentioned.
Canada is responding to U.S. President Donald Trump’s menace of huge tariffs on Canadian imports with retaliatory tariffs of its personal. Andrew Chang explains how tariffs — and a potential commerce conflict — might influence the economic system, companies, and customers each north and south of the border.
Photographs gathered from Reuters, Getty Photographs, and The Canadian Press.
Within the occasion that Trump tariffs Canadian oil, he says, Canada ought to reply by decreasing provide by about 300,000 barrels — an motion just like the 2018 curtailment — whereas specializing in liberating Canada in the long run from over-dependency on a neighbour that may not be thought of a dependable accomplice.
There was recent talk of restarting Northern Gateway, however the thought has been performed down by Enbridge itself. Spokesperson Jesse Semko advised CBC Information this week that the corporate has “no plans” to revisit it.
Nothing would stop governments from taking over the venture, however Johnston says the payoff could be a few years away.
“It is in all probability less complicated so as to add an extra form of twinning or tripling on TMX than to undergo a whole new siting of Northern Gateway,” he mentioned. “I feel the lengthy and in need of it’s both a pipeline to the West Coast or a pipeline to the East Coast. Or extra realistically each.”
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