Keystone XL“The importance of a common, continental energy market cannot be overstated.” – Carr spokesperson

The verdict is in: bitterly controversial pipeline Keystone XL is going ahead. Canadian and Alberta politicians are throwing their support behind Calgary-based TransCanada’s project, which may be the harbinger of a new approach to North American energy trade.

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Prime Minister Justin Trudeau addresses reporters at Keystone XL press conference.

President Donald Trump made the right decision, the decision Obama should have made a year and a half ago.

“It’s a great day for American jobs and a historic moment for North American and [sic] energy independence,” Trump said in a press release.

Trudeau was also effusive with his praise.

“We’re very pleased with the announcement coming out of the United States,” Trudeau told reporters Thursday, emphasizing that getting Canada’s natural resources to market is key to creating jobs.

“We also know that the United States has as a top priority securing stable, reliable sources for their energy with partners, and Canada can be, and should be, that partner.”

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Jim Carr, natural resources minister. jcarr.liberal.ca photo.

Mostly unnoticed was an interesting comment by a spokesman for Jim Carr, Canada’s natural resources minister: “The importance of a common, continental energy market cannot be overstated.”

Interesting, mostly because of Trump’s “energy independence” remark.

Trump made this point many times during last year’s campaign, going so far as pledging to ban crude oil imports from OPEC “and any nation hostile to our interests” from the American market.

Those comments have been interpreted several ways, including to mean that Trump will provide incentives for American oil companies to produce all 20 million b/d required by the domestic market. This would be an enormous feat given that peak production in 2015 was 9.5 million b/d. But recent large discoveries in Texas’ Permian Basin and the Gulf of Mexico have led to speculation that the United States could be largely self-sufficient in a decade.

That doesn’t appear to be the strategy.

Signals, like those made by Carr’s office, suggest an even deeper integration between Canadian and American oil industries.

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Trans Mountain Burnaby Now photo by Cornelia Naylor.

This would effectively mean Canada is abandoning the dream of developing alternative markets in Asia, where Alberta producers could fetch Brent prices for high cost oil sands crude.

Which makes perfect sense given British Columbia’s opposition to Kinder Morgan’s Trans Mountain Expansion project. Trudeau is going to spend considerable political capital to push that 525,000 b/d pipeline to completion.

What the odds of building another pipeline to the West Coast in the near future? Slim to none, I reckon, and Slim’s on the slow ferry to Salt Spring Island.

The Canadian Assoc. of Petroleum Producers is forecasting expansion of oil sands output by 1.5 million b/d by 2025. Keystone XL will take 830,000 b/d, but that still leaves Canada’s already congested pipeline system short of capacity. And when one considers that 30 per cent of the space in a pipeline is reserved for diluent, well, that only makes a tight situation tighter.

In fact, I’m going to go out on a limb and speculate that the approval of Keystone XL signals the death knell for TransCanada’s even bigger project, the 1.1 million b/d Energy East pipeline to the Canadian east coast.

Eastern refineries used to be supplied primarily from Middle East countries, but American shale producers muscled their way into that market, now supplying more than half of the roughly 600,000 b/d requirement. US producers are closer than Alberta, meaning transport costs are less.

Keystone XLMaybe the way the “continental energy market” shakes out in the next five to 10 years is that more and more Alberta crude heads south to the Texas Gulf Coast refineries – which historically use over 2 million b/d of heavy crude that was supplied mostly by Venezuela, Mexico, and Nigeria, all nations whose industries are in turmoil, making them less than reliable suppliers – and Alberta cedes Eastern Canadian markets to American shale drillers.

Nixing Energy East would relieve the Trudeau Liberals of a huge political headache in vote-rich Ontario and Quebec before the 2019 federal elections, while the promise of future pipelines south might shore up Liberal votes in Alberta, where Trudeau made a breakthrough of sorts two years ago. The prospects of no new pipelines to the West Coast might woo back Liberal votes in BC, which will have to come to terms with Trans Mountain Expansion at some point.

Trump and Trudeau conspiring to strengthen the continental oil (natural gas and hydro electricity likely to follow) market is pure speculation on my part. But the argument makes a lot of sense, for both national leaders.

One thing is certain: Keystone XL is going to be an epic battle with the American and Canadian environmental movements, which have been spoiling for a scrap with Trump ever since the Republican candidate won in Nov.

If nothing else, expect that debate to clarify the energy strategies of both countries. Trump and Trudeau will have to show their hand eventually, and my guess is sooner rather than later.

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