As Canada’s oil and natural gas production has reached record levels, the country is working to amplify its status as a global oil and natural gas superpower. Part of this broader initiative includes an ongoing effort to transform the industry to be less dependent on U.S. markets and infrastructure, through strategic expansion of its industry, at a time when the U.S. is taking a step back .
Canada took a major step in this direction on May 1, when the Trans Mountain (TMX) pipeline expansion project finally became commercially operational after 12 years and $34 billion ($25 billion). Years of insufficient pipeline infrastructure have forced Albertan oil producers to sell their oil at a discount, resulting in the loss of tens of billions of dollars in revenue each year. The new TMX is destined to change all this, tripling the flow of crude oil exported from the North American country.
In anticipation of a boom year for Canadian oil and gas, producers are already ramping up production, and as a result, Canadian oil production is expected to break records this year, reaching a high of around 5.3 million of barrels per day. Not only is this a huge benefit for the Canadian economy, but also a big step towards self-sufficiency for the Canadian energy industry, which will allow the country to reduce its dependence on US markets.
The expansion of oil production and crude transportation capabilities comes at the same time that Canada is looking to boost its natural gas sector. The first phase of the LNG Canada liquefied natural gas export facility, the largest private investment in Canadian history, is nearing completion in Kitimat, British Columbia. The project expects to become fully operational in 2025.
Where is Kitimat located
Although the LNG Canada plant was designed for the sole purpose of exporting natural gas to other countries, its operations will actually reduce Canadian exports to the United States, at least in the short term. Although the United States was a net exporter of natural gas last year, Washington still imported 8.0 billion cubic feet per day of natural gas in 2023. And most of it was delivered via a pipeline from Canada.
As LNG Canada terminal operations accelerate, these pipelines will likely take a hit as supplies run tight for the first few years. “Western Canadian producers have historically been able to increase average production by up to 0.5 [miliardi di piedi cubi al giorno] year-over-year, indicating a temporary supply gap for the U.S. and eastern Canadian markets as LNG Canada begins full operations,” Reuters recently reported. Industry insiders expect it will take about four years to meet LNG Canada’s demand for natural gas alone.
While this represents an obstacle for the United States, which does not extract enough natural gas to meet its own demand despite being the world’s largest producer, Canadian markets see the loosening of their close relationship with US markets as an important step to their autonomy and their status in the global market. “The start-up of LNG Canada opens up new markets for Canadian gas, beyond the Lower 48 (U.S.)… any decline in the amount of Canadian gas exports to the U.S. could reverberate across North America over the course of this decade” , said Eli Rubin, senior energy analyst at consultancy EBW Analytics Group, quoted by Reuters.
To be sure, Canada is not trying to break its close trading relationship with the United States. Indeed, he continues to push for greater economic cooperation between close allies in the future. However, Canada is currently in a unique position to gain strategic economic ground on a global scale, as the United States continues to suspend approval of new LNG export licenses, and many Canadian officials believe it would be foolish not to capitalize on this window of opportunity.
One could even imagine a future in which Canada replaces, at least partially, LNG exports to Asian countries, thanks to its new infrastructure. This evolution would be much more likely if the conservatives won the next election, much more willing towards the evolution of the extractive industry.
Thanks to our Telegram channel you can stay updated on the publication of new Economic Scenarios articles.
⇒ Sign up right away ⇐
