President Obama: You need Canuck oil

A great deal is riding on President Barack Obama’s visit to Canada on Thursday. The decidedly green bent of his new administration has the potential to undercut Canada’s petroleum exports to the United States. Thus, Canadian officials must emphasize to the president the strategic importance of Canada’s oil reserves to America’s security.

Canada is the largest supplier of crude oil to the U.S. market, ahead of Saudi Arabia, Venezuela, and Mexico, among others. Crude oil and petroleum product exports from Canada represent about 20 per cent of total American oil imports. A rapidly growing proportion of that supply comes from Canada’s oil sands, which are estimated to contain about 173 billion barrels of recoverable reserves — second only to Saudi Arabia (262 billion) and well ahead of Venezuela (80 billion) and Mexico (12 billion).

This is the same petroleum supply that candidate Obama attacked as “dirty, dwindling and dangerously expensive.” His aides later said it was an “open question” whether oil extracted from Canadian oil sands would “align” with the energy policy of an Obama administration.

Hyperbole aside, Mr. Obama can’t halt the huge flow of oil by decree. However, his policies could significantly raise the costs of supplying the American market. For example, he backs imposition of a “low-carbon fuel standard,” which would require gasoline suppliers to reduce the emissions associated with the production of transportation fuels. Such a standard could constitute a market barrier to Canadian petroleum derived from oil sands, which requires more energy (and thus creates more emissions) to produce and refine than crude oil and products from conventional sources.

In fact, oil sands excavation and processing generate less than one-tenth of one per cent of total global emissions of so-called greenhouse gases. And, it’s undoubtedly more eco-friendly to pipe oil across the U.S.-Canadian border than to transport 13,000 barrels a day via tanker from the Middle East.

President Obama obviously could use some perspective on the tradeoffs involving the oil sands: a supply of petroleum that is shielded from the risk of disruption by foreign conflicts, piracy, or the whims of OPEC. That’s a valuable benefit considering that the risks of global warming are purely hypothetical — unlike the risks of an oil embargo.

Mr. Obama also would do well to recognize that shutting the Canadian oil spigot would undercut the U.S. economy. According to the U.S. Department of State, Canada is the leading export market for 36 of the 50 U.S. states, and ranks in the top three for another 10 States. In fact, Canada is a larger market for U.S. goods than all 27 countries of the European Community combined. To the extent the Canadian oil industry is weakened, the nearly 500,000 workers whose jobs are related to energy activities wouldn’t be able to buy quite as much U.S. goods. Meanwhile, the United States, in the throes of recession, is in no position to absorb a substantial hike in energy prices.

Petroleum production is indeed a dirty business. But there are environmental impacts associated with every form of energy. The carbon intensity of oil sands products is lessening as new technologies emerge. Continued R&D will yield even more improvements.

The task of Canadian officials is straightforward: highlight the unparalleled strategic importance of the oil sands to America and the vital role of the Canadian energy industry to the North American economy. Hopefully, President Obama will return home a bit wiser about the benefits of Canadian energy.