Canadian oil needs to decouple from the American market

By Robert M. Cutler on December 14, 2014

U.S. President Barack Obama's appearance on The Colbert Report this week confirmed that he has no qualms about leaving Canada in the lurch in current global energy glut.

In the interview, Colbert observed that the Republican-controlled Congress would approve the Keystone pipeline, that polls show the American people favouring it, that the State Department review concluded any pollution would not be significant, and that it would create jobs for the U.S.workforce. In response to this "grilling", Obama repeated his long-stated misgivings about the project.

He further strongly implied that if the Keystone pipeline were built, then Canadian oil would not be consumed in the U.S. but exported from the Gulf of Mexico to world markets. He even implied that this was a reason not to build it.

But why export it from there to world markets if it can be exported from Canada to world markets? The Energy East pipeline project is one that proposes to do this.

It has been clear for several years that Canada must chart its own path and cease being hostage to U.S. markets just because it has no other export pipelines. It must build its own pipelines.

The interminable delays in the American approval and construction of the Keystone pipeline are not the only injuries that the Canadian energy sector has suffered from Washington over the past few years. Add the collateral damage from Obama's falling-out with the Saudis.

His "reversal of alliances" against Saudi Arabia and in favour of Iran(which continues nevertheless to see the U.S. as its own enemy!) ended Washington's decades-long special relationship with Riyadh. But Washington has nothing to show for this.

Spin doctors inside the Washington Beltway first tried to portray the new Saudi oil overproduction as a swipe at the Russians in line with Western sanctions. That is hardly the case since, for example, Gulf banks do not observe these sanctions.

Such pundits now generally admit that the goal is to render U.S. shale oil uneconomical to produce, not least because the Saudis say this themselves.

That is how Canada's energy economy is very likely to suffer collateral damage from this epochal shift in U.S. foreign policy in the Middle East.

If Obama had maintained the long-standing good American relations with Saudi Arabia, there would at least have been the possibility for dialogue between the two parties. There would an outlook for cooperation of some kind between them regarding world energy markets.

But having burnt his bridges in the Middle East, Obama has no chance to do that.

If Canada suffers a recession because its energy is no longer competitive on world markets, then much of the responsibility will in fact  be Obama's.

The American split with the Saudis and the Keystone impasse are both of his making.

World oil prices will recover in several years. So it may still make sense to develop some Canadian shale oil for the domestic market in the meantime, and with a view to future export to world markets.

That would also create needed jobs during any recession in the current decade. Pipelines such as Energy East would then easily give Canada oil that is much more economical than the foreign imports landing in eastern Quebec, where Energy East would terminate.

Obama's appearance on the Colbert show confirmed his well-known ability to read a teleprompter to an admiring audience. It also confirmed that Canada must continue to chart its own path through the roiling seas of oil that now flood the planet.

Robert M. Cutler (rmc@alum.mit.edu) is an international energy expert and consultant. He lives in Montreal.


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