Why Trump Needs Canadian Oil
In January, Donald Trump told the World Economic Forum that his country doesn’t need Canadian oil and gas. “We have more than anybody,” he declared. Like so much else Trump says, this was untrue. The U.S. ranks ninth in terms of world oil reserves, while Canada is in third place. Twenty-two per cent of the oil America uses is imported from Canada. Nonetheless, in February, the White House went further, proclaiming its plan to restore “American energy dominance” by producing more oil domestically. But this is a fantasy, from a time long before oil and gas became the continent-spanning enterprise it is today.
For more than 50 years, the oil and gas industry has been deeply integrated, like the auto industry, across our borders. The U.S. imports oil from Canada and Mexico, while Eastern Canada imports it from the northeastern states and foreign suppliers. Most of Canada’s pipelines run south, out of Alberta to American refineries. The Enbridge mainline, from Edmonton to Sarnia, Ontario, was built in the 1950s to run partly through the U.S., because it was cheaper. (A scorched-earth approach to American energy dominance could result in the Americans shuttering it—they have the technical means—choking off 500,000 barrels per day of domestic supply.) So why does Trump believe America can simply go it alone?
In part it’s because the fracking revolution in the U.S. unlocked a wealth of new oil and gas reserves, and the country now produces more oil than it consumes. Simple math dictates that it could be energy independent—but there is little in the way of simple math in the oil world, and the American market remains dependent on Canada’s cheaper product. The benchmark price of oil from Alberta’s oil sands is Western Canadian Select, or WCS, which often trades at a steep discount to West Texas Intermediate, the comparable U.S. benchmark. In early April, WCS was less than $50 per barrel, while WTI was above $60. This is the case for importing Canadian oil: buy low, sell high. Americans import cheap Canadian oil and sell their own oil internationally, where it fetches higher prices. The result is that while the U.S. ships more than 10 million barrels per day out of the country, it still imports 8.5 million, almost half of that from Canada.
America’s refining capacity is also set up for Canadian product. The oil sands produce bitumen—heavy, sour oil. Many U.S. refineries are designed for bitumen, rather than the lighter, sweeter oil produced from Texas’s Permian basin, which is shipped to different refineries, some of them offshore. If the U.S. wanted to retool its refineries for domestic oil, the process would take years and be prohibitively expensive. There is also no viable replacement for Canadian oil; the closest match is Venezuelan oil, but that country is currently under U.S. sanctions. With the exception of a small refinery built in North Dakota to service fracked oil, the last U.S. refinery was built in 1977, and dozens have shut down since then, either at the end of their mechanical life, deemed unprofitable or, in the case of the Energy Solutions refinery in Philadelphia, because of a massive explosion. For the U.S. to achieve energy security through fossil fuels would require tens of billions of dollars in investment. It would also be subject to legal challenges and the likelihood of a future Democratic government.
More importantly, energy dominance would arrive just in time to make America an energy backwater, as the rest of the world increasingly moves on to cleaner fuels. In February, the White House released a fact sheet entitled “Positioning American energy for the next century.” The irony is that Trump’s policies position America for the last century—all part of his nostalgic bid to Make America Great Again. Oil embodies a seductive but bygone American mythology. It represents the freedom of the open road, as well as a steadfast retreat to a time when America was whiter, when there were only two genders and when industry was unhindered by regulation. It also, of course, represents a time before renewable energy. The International Energy Agency has predicted that global oil consumption will peak in 2030, while other models suggest the tipping point could happen sooner. Any major capital investment in fossil-fuel infrastructure comes up against this likelihood.
During Trump’s first term, he aggressively pursued America’s nostalgic, oil-fuelled past, opening up public lands for drilling and removing more than 100 environmental regulations. At the same time, other countries aggressively pursued the future, especially China. It is now dominant in the green energy sector, producing 80 per cent of the world’s solar panels, controlling 60 per cent of wind power manufacturing, and making 75 per cent of the world’s lithium batteries. The Chinese EV manufacturer BYD now outsells Tesla by a widening margin. And though China is the world’s largest importer of oil, its demand may have peaked in 2023. Trump set America back during his first, somewhat aimless term—but he managed to make China Great Again.
He is much more focused this time around, and yet his goal of energy dominance is even more futile. Between 2010 and 2020, fracking operations in the U.S. lost $300 billion, partly due to declining oil prices. Two-thirds of U.S. oil now comes from fracking, and it remains particularly vulnerable to fluctuating oil prices. The U.S. can’t catch up to China on renewable energy, and it’s beholden to market forces when it comes to fossil fuels. Yet in his quixotic quest for dominance, Trump now threatens to compromise both America and Canada’s tenuous energy security.
What is Canada to do? Both Alberta Premier Danielle Smith and Conservative Leader Pierre Poilievre have called for increased oil and gas production, the relaxing of federal regulations and the revival of both the Northern Gateway pipeline to the Pacific coast (cancelled in 2016), and the Energy East pipeline (cancelled in 2017) that would run to New Brunswick. This would have been a viable plan twenty years ago. Now, the pipeline discussion is almost wholly political—there aren’t any private companies lining up to build new pipelines, because the economic argument is weak. The Liberals paid $4.5 billion in 2018 for the Trans Mountain pipeline, intending to expand it. By the time the expansion was finished last year, it had cost $34 billion, more than four times the original estimate. And neither the proposed Energy East, nor Northern Gateway pipeline, would do much for energy security. Eighty per cent of the oil in Energy East was designated for foreign markets. It’s clear that Smith’s priorities are firmly aligned with oil interests, rather than national energy security.
Despite holding some of the largest fossil fuel reserves on earth, Canada hasn’t been able to achieve energy security. And despite being a net exporter, the U.S. hasn’t either. The time that either country could have done so with fossil fuels has passed. A Cambridge University study recently singled out Alberta’s oil sands as the most vulnerable to becoming a stranded asset, due to high emissions and the high cost of extraction. American fracking isn’t far behind. Both use a lot of energy to extract energy, ranking at the bottom of energy return on investment.
Like so much these days, energy has become tribal. In the U.S., oil is Republican, Christian, and inherently masculine, while renewables are woke, socialist and elitist. Our own perspective in Canada isn’t much different. Trump, who has a gift for creating and exploiting division, has seized on this divide and is using it as a cudgel, even though his best shot at a version of energy security in the short term is a strong alliance with Canada. And in the long term it requires looking past oil.
Canada currently produces 24 gigawatts of wind and solar annually, an increase of 46 per cent in the last five years, despite the fact the renewable sector receives a fraction of the subsidies that go to oil and gas. In 2023, 1.5 million jobs in renewable energy were added globally, far more than were added to the oil industry. Renewable energy is less affected by unstable geopolitical forces, free from fluctuating and often manipulated oil prices and less vulnerable to political whims in an increasingly authoritarian world. And the economic case is compelling; the International Energy Agency declared that solar is now the cheapest form of energy on earth, cheaper than natural gas.
Yet in Alberta, Premier Danielle Smith imposed a moratorium on wind and solar installations, impacting an estimated $33 billion in investment that would have provided 18 gigawatts of energy. The slack was picked up by B.C and other provinces, which had a spike in renewable investment. You can delay the future, but you can’t prevent it from arriving. There was an argument to be made for pipelines 20 years ago, but there is far less of one now. Any capital expenditure on fossil fuel infrastructure will be prohibitively expensive, benefit relatively few Canadians and will be subject to medium- and long-term market risk. The IEA reported that 2022 was the first year that global investment in renewables exceeded investment in fossil fuels. The smart money was shifting.
Whatever Trump’s threats, whether tariffs or threats to our sovereignty, he is a lurid illustration of how quickly things can turn on the international stage. For this, we owe him a debt of thanks. The Golden Age of Oil was indeed golden, but it is irretrievably gone. I worked as a roughneck in Alberta’s oil fields in the 1970s, a glorious decade for oil. It has given us freedom, warmth, hope and ruin. It will still be with us for some time. There has never been a more critical time to embrace the future.
Don Gillmor is a novelist, journalist and former roughneck in the Alberta oil fields. His most recent book, On Oil, will be published on April 22.
