The necessity to diversify markets and respond to growing Pacific Rim demand for Canadian oil has never been clearer.
Delivering Western Canadian crude oil to emerging Pacific Rim economies will allow Canada's oil producers become global players rather than solely continental ones.
The U.S. and Canada are two of the strongest economies in the world. Each is blessed with an excellent neighbour in the other, and we both benefit tremendously from our energy trading relationship. In Canada, we have among the world’s largest petroleum reserves, and the U.S. is a huge market and the primary customer for our oil.
But while Canada is America’s largest supplier of crude, the U.S. has a multitude of suppliers. Canada, meanwhile, has but a single customer as almost 99 per cent of our nation’s petroleum exports flow into the United States. The result is that Canada is at the mercy of a landlocked North American market where Canadian crude is discounted against world oil prices.
That renders Canada a “price-taker”, suffering the double-whammy hit of the WTI discount plus a discount off that. Further, the U.S. market for Canadian crude, important though it is, is a more challenging environment due to a number of factors, from domestic production to opposition to oil sands development.
Most significant is the impact of the growing U.S. crude oil production coming out of the Bakken region and Eagle Ford play as well as the massive new shale gas reserves unlocked over the past few years. While the U.S. values Canada’s oil, America’s domestic production will certainly grab market share.
There are a number of factors that threaten to erode Canada’s U.S. market for crude.
Flat to dropping U.S. demand;
Rising U.S. domestic production
The U.S. ethanol mandate and other biofuels, which replace crude oil at a rate of two
barrels for one
The possible conversion of the U.S. heavy truck fleet to natural gas;
Growing opposition to “tar sands” crude in the U.S., in excess of opposition to their
own heavy oil production
Not only does Canada need new markets to diversify beyond a single customer, we will soon be in need of new markets to meet forecasted production volume increases from Canada’s oil sands reserves.
Canada’s energy market options will be diversified by connecting this country’s crude oil resources to important, emerging markets in Asia. Having access to these high energy-demand Asian markets will boost oil prices for all Western Canadian producers by an estimated $2 to $3 a barrel. The result will render Canada a projected $270 billion increase to Canada’s GDP over 30 years.
Canada needs to diversify its crude oil export markets beyond North America by building new market access along the Pacific Rim where demand for oil is undeniable. Market diversification will mitigate the risks associated with having a single customer and it will ensure competitive pricing for Canadian oil.
