America's Addiction to Canada's Crude

As long as America remains addicted to oil, Nancy Pelosi and her fellow Democrats will have no choice but to look beyond the environmental toll of Alberta's oil sands.

U.S. House of Representatives Speaker and California Congresswoman Nancy Pelosi arrived in Canada last week ostensibly to get the real goods on Alberta’s oil sands. As an environmentalist up for re-election in November, Ms. Pelosi is under pressure from her constituents about the carbon footprint of the oil the U.S. gets from its top supplier – the Canadian oil sands. The question is, if not Canada, who?

“America is addicted to oil,” said George W. Bush in his 2006 State of the Union address. This statement raised eyebrows at the time, but nothing could be truer. Americans, with 4.5 per cent of the world’s population, consume 22 per cent of its oil production. The U.S. was once the number one producer of oil on the planet, producing as much as Saudi Arabia does today. That began to change in 1970 when U.S. oil production peaked. Since then, despite the discovery of Prudhoe Bay in Alaska and deep-water oil in the Gulf of Mexico, U.S. oil production has inexorably declined while consumption has risen – to the point that more than half of U.S. oil consumption today is met by imports. If the Great Recession did one good thing, it cut U.S. oil consumption. Net imports declined by 13 per cent year-over-year in 2009, but that still leaves 9.7 million barrels per day. To put that in perspective, China, the second largest economy in the world with more than four times the U.S. population, consumed, in total, more than a million barrels per day less in 2009 at 8.6 million barrels per day.

Canada became the top source of U.S. oil imports in 2000 at 16.4 per cent, crowding out Saudi Arabia (15.2 per cent), Venezuela (14.8 per cent) and Mexico (9.8 per cent). In 2009 Canada provided 23.2 per cent of U.S. imports, eclipsing Venezuela at 10.7 per cent and Saudi Arabia at 10.4 per cent. Mexico’s oil exports to the U.S. have declined by 39 per cent since its production peaked in 2004. The top ten U.S. oil suppliers, which together account for 85 per cent of imports, also include Nigeria (8.2 per cent), Russia (5.8 per cent), Algeria (5.1 per cent), Angola (4.7 per cent), Iraq (4.7 per cent) and the Virgin Islands (2.8 per cent), several of which are less than stellar examples of political stability.

When it comes to Canadian oil exports it’s mostly about the oil sands, which now account for more than half of Canadian oil production as conventional oil production has been in decline for many years. The old saw “you can’t make a silk purse out of a sow’s ear” certainly applies here, despite the likely assertions to the contrary by Alberta and federal politicians, bureaucrats, and CEOs that Ms. Pelosi met with during her visit. Compared to the easy conventional crude of yesteryear, the oil sands are a low-quality, energy- and emissions-intensive source of oil. The net energy profit of oil sands (the amount of energy invested for extraction compared to the energy obtained from burning the oil) is about 5:1 for mineable oil sands and just over 3:1 for in situ projects, which constitute 80 per cent of the recoverable resource. This compares to about 25:1 for conventional oil today and 100:1 in the good old days when the largest field in the world – Ghawar – was discovered in Saudi Arabia. The well to tank emissions from the oil sands have been estimated by the U.S. EPA at 82 per cent higher than conventional oil – some suggest this is conservative, compared to assertions by the Alberta government that emissions are only 10 per cent higher. Moreover there are serious issues of water consumption, contamination and the physical footprint of massive tailings ponds and mining- and in situ-extraction operations. The techno-carbon-fix of carbon capture and storage proposed by the Alberta and federal governments is years away, if ever, and would only make a poor source of oil even worse from a net energy point-of-view.

Notwithstanding this, unless the U.S. undergoes an epiphany and realizes that a paradigm shift is necessary in order to avoid the inevitable collision of growing consumption of oil and other resources with limits imposed by a finite planet, Canadian oil sands will continue to flow. Ms. Pelosi and other politicians may pay lip service to the obvious environmental constraints but the U.S. really doesn’t have many alternatives as long as it is addicted to oil.