There is no doubt that Keystone XL’s cancellation was a massive gut punch to Canada and its oil and gas industry. Now the analysis is out showing the impact it had on the United States.

Just a sliver over two years ago the U.S. government nixed the pipeline project which would have added an additional 830,000 barrels of oil per day into the U.S.

The pipeline, which was expected to be complete in 2023, would have provided thousands of jobs and billions in economic activity. In December, the U.S. Department of Energy released its congressionally mandated report on the matter, and it’s now known approximately how many jobs and billions of dollars were foregone due to the cancellation.

The highlighted impacts in the report show that about 20,000 potential construction jobs per year over a two-year period were lost.

The nixing of the project also had a direct impact on the U.S. GDP with a loss of $3.4 billion. Wages were also impacted, with an estimated loss of $2.05 billion in potential earnings.

While there have not been any government numbers released for Canadian job losses, TC Energy said at the time of the cancellation that 1,000 workers would be laid off due to the announcement. It was a missed opportunity to lower costs for U.S. consumers, according to the American Petroleum Institute.  Indigenous groups were also impacted by the cancellation.

Dale Swampy, president of the National Coalition of Chiefs noted that “It’s quite a blow to the First Nations that are involved right now in working with TC Energy to access employment training and contracting opportunities.”

Natural Law Energy, an Indigenous-owned energy company, had signed an agreement to invest a $1 billion equity stake in the pipeline.  This would have had the potential to create jobs and economic opportunity for Indigenous communities, Natural Law Energy said. More than $600 million in supply and employment agreements for Indigenous-owned companies were expected to come from the project’s construction.

While celebrated by many environmental groups, the decision to cancel Keystone XL was controversial on both sides of the border. Politicians, Indigenous leaders, and labour unions criticized the cancellation for the significant consequences it could have for both Canada and the United States.

Teamsters general president Jim Hoffa’s statement strongly encouraged the U.S. government to reconsider the decision. “This executive order doesn’t just affect U.S. Teamsters; it hurts our Canadian brothers and sisters as well who work on this project. It will reduce good-paying union jobs that allow workers to provide a middle-class standard of living to their families.”

Terry O’Sullivan, general president of the Laborers’ International Union of North America said, “By blocking this 100 percent union project, and pandering to environmental extremists, a thousand union jobs will immediately vanish, and 10,000 additional jobs will be foregone.”

The United States is the world’s largest importer of oil, and Canada is its top supplier. America will continue to rely on oil imports, according to the U.S. Energy Information Administration. Absent Keystone XL, imports will come increasingly from other countries that may not have the same environmental and human rights standards as Canada.

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The U.S. decision to ease sanctions and allow it to resume oil imports from Venezuela will hurt Canada’s oil sector, according to industry analysts. 

It’s another blow by the administration that cancelled the 830,000 barrel per day Keystone XL pipeline from Canada in January 2021. Now officials are seeking alternate supplies to replace imports from Russia and keep costs down for Americans.  

“They should be talking to Canada instead of Venezuela,” says Phil Skolnick, a New York-based analyst with Eight Capital. 

The importance of heavy oil 

In question is the massive market for “heavy oil” – which both countries produce – in the U.S. Gulf Coast refining cluster. Canada is now the largest supplier to the region, in recent years helping replace sinking imports from Venezuela amid what IHS Markit called “decades of decline and decay.” 

Imports from Venezuela stopped entirely in 2019 after the U.S. imposed additional sanctions to pressure authoritarian leader Nicolás Maduro to leave power.  

The Biden administration says the move to ease the sanctions is a result of Venezuela’s government taking steps to improve humanitarian conditions. But negotiations were in fact underway months ago as a potential solution to replace oil from Russia following its invasion of Ukraine.  

Ripple effect 

More Venezuelan oil to the U.S. Gulf Coast could push out imports from Canada, causing Canadian producers to receive lower prices because of a wider “differential” or discount compared to benchmark West Texas Intermediate.  

This has a ripple effect to everyday Canadians because government royalties are paid on a sliding scale based on oil prices – the lower the price received, the lower the royalties. 

“Politics aside, this is a significant negative to Canadian oil differentials,” Dan Tsubouchi, chief market strategist with Canadian investment management firm SAF Group, wrote in a research note.   

Western Canadian Select, Canada’s primary blend of heavy oil, is already trading at the widest differential to WTI since early 2020. It’s the result of increased production and not enough pipeline capacity, as well as the U.S. government’s decision to release similar quality oil from the Strategic Petroleum Reserve.

Venezuela could happen quickly 

Skolnick says the impact of easing the sanctions on Venezuela will depend on how quickly Chevron – the company granted the license to proceed – can bring production online. The license entitles Chevron to restart production in existing fields, but not start up new ones.  

Tsubouchi said it could happen faster than many expect, as Chevron can now provide important equipment and supplies like diluent for pipeline blending and diesel for reliable power.  

“An increase of even 100,000 or 200,000 barrels per day would be significant to Canadian oil,” he wrote.  

“Certain things will happen quickly.” 

Responsible production 

Meanwhile, Venezuela remains one of the world’s worst offenders on human rights, with a score of 14 out of 100 on Freedom House’s Global Freedom Index. Canada’s score is 98.  

The U.S. has refused to recognize Maduro’s presidency since 2019, declaring that he was not re-elected democratically and fosters policies “marked by authoritarianism, intolerance for dissent, and violent and systematic repression of human rights and fundamental freedoms.” 

There’s also evidence that Venezuela’s heavy oil is worse for the environment than oil produced in Canada.  

A 2018 study led by researchers at Stanford University found Venezuela’s emissions per unit of oil to be higher than Canada’s on average (20 grams of CO2 equivalent per MJ of energy compared to about 18 gCO2e/MJ). 

Researchers noted that Canada was only one of a handful of countries with “higher quality data,” meaning that their estimate for Venezuela is likely incomplete. 

The study also used data from 2015, and significant progress has since been made in Canada to reduce emissions intensity. Average oil sands emissions per barrel decreased by 21 per cent from 2009 to 2021, according to S&P Global.  

If it had been allowed to proceed, the Keystone XL pipeline was expected to start operating mere months from now, in the first quarter of 2023.  

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Like the cancellation of Canada’s Keystone XL pipeline, the unprecedented depletion of the U.S. Strategic Petroleum Reserve is contributing to a less energy secure world, says a veteran Wall Street energy analyst. 

SPR inventories are at their lowest level in nearly 40 years as the White House releases oil to temper U.S. gasoline prices ahead of midterm elections.  

“The original intention of the SPR was to protect the U.S. against geopolitical disruptions versus simply trying to tame high oil prices. The spare capacity cushion is pretty tight right now,” says Arjun Murti, a former partner with Goldman Sachs.    

“Keystone XL and more Canadian production would help support long-term energy security and reliable supply.” 

There’s not enough consideration of the “S” in SPR, says Adam Rozencwajg, managing partner with New York-based Goehring & Rozencwajg Natural Resource Investors. 

“This petroleum reserve was very strategic. It was put in place after OPEC used oil as a weapon in the 1970s,” he said on a recent podcast.  

“It happened twice. In both cases, in order to punish the West, Saudi Arabia withheld oil from the market, and it created huge problems.”

The move to tap the SPR today is attributed to the fallout from Russia’s invasion of Ukraine, but the government’s withdrawals started months before the war began. And it hasn’t done much to reduce gasoline prices.

The Canadian Energy Centre is reaching millions of Americans with its “Look North” campaign promoting Canada’s responsible oil and gas. Learn more here.

When President Joe Biden took office in January 2021 – and cancelled Keystone XL on his first day – gasoline averaged $2.42 per gallon, according to the U.S. Energy Information Administration.  

Despite repeated appeals from the White House to OPEC nations led by Saudi Arabia to increase production, the price at the pump has only gone higher. 

Since November 2021, when the government started drawing from the SPR, gasoline prices have averaged $4.06 per gallon, EIA data shows. 

Meanwhile, importing oil from Canada has been found to help lower U.S. consumer energy costs and support jobs, according to a 2021 study published by the American Petroleum Institute.

That’s mainly because U.S. refineries are largely configured to process heavy oil like that produced in Canada. 

“Most of the U.S. refining capacity that takes oil and turns it into refined products like gasoline, diesel and jet fuel was actually built to accommodate heavier crudes from both Canada and Venezuela,” Rozencwajg said. 

U.S. imports of Canadian oil – which doubled between 2005 and 2019 – have been a “godsend” for energy security, according to Christopher Guith, senior vice-president of the U.S. Chamber of Commerce Global Energy Institute.  

“It transformed our energy economy incredibly and enabled us to push out OPEC imports,” he said.  

Even with the growing role of renewable energy, the U.S. is expected to import about as much oil in 2035 as it does today, according to the U.S. Energy Information Administration.  

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As President Joe Biden takes in the latest rejection by OPEC countries to increase production to help ease American pump prices, U.S. lawmakers are again condemning his cancellation of the Keystone XL Pipeline from Alberta.  

On Oct. 5, the oil cartel led by Saudi Arabia announced its largest cut since before the COVID pandemic, a two million barrel per day reduction starting in November.  

While the actual cut is expected to be closer to 1 million barrels per day, the Biden administration is reportedly “panicking” as reduced OPEC production could cause U.S. gas prices to spike before critical mid-term elections in November.  

Senators and House Representatives are pointing out that Keystone XL would have carried 830,000 barrels of oil per day from Western Canada to U.S. refineries — had Biden not canceled the project on his first day in office. 

Here’s what they had to say:  

Senator John Kennedy, LA (R): 

Pres. Biden killed the Keystone XL Pipeline, which would have moved roughly 800,000 barrels of oil per day by 2023. 

Biden cut Americans off from affordable energy, and Louisianians are literally paying the price. But I won’t stop fighting his green-at-any-cost agenda. 

 Senator Ted Cruz, TX (R):  

Biden blames gas stations for high prices but just a reminder he killed oil and gas leasing on federal lands and waters, he killed the Keystone XL pipeline, and has drained the Strategic Petroleum Reserve to its lowest level since 1984 (among many other terrible decisions).

Senator Marsha Blackburn, TN (R): 

Joe Biden made a decision. 

He declared war on American energy. 

He canceled the Keystone Pipeline. 

He issued over 42 regulations to make American energy more expensive 

Now, Americans are being forced to live with the consequences. 

Senator Tim Scott, SC (R):  

Republicans have warned against the threat of relying on bad actors for our energy supply. 

But President Biden blocked our oil and gas resources here at home starting on Day 1, when he canceled the Keystone XL Pipeline. 

Senator Jerry Moran, KS (R): 

President Biden must reverse course and approve new drilling permits in the United States and strengthen our energy infrastructure, like the Keystone XL Pipeline. By using an all-of-the-above energy strategy to produce oil and natural gas, as well as renewable energy like biofuels, wind and solar, the United States has the ability to not only be energy independent but also supply energy to our allies around the globe.  

Rep. Brian Babin, TX (R): 

Reminder that the Keystone XL pipeline would be pumping 830,000 barrels of oil per day to U.S. refineries had Biden not shut it down. 

The Democrats’ war on oil and gas is hurting our nation AND our allies. 

Rep. Lauren Boebert, CO (R):  

Just imagine how much better off we’d be if Biden had not cancelled the Keystone XL Pipeline. #DrillBabyDrill 

Rep. Lance Gooden, TX (R):
Joe Biden is calling on gas stations to lower prices. Gas stations weren’t the ones who shut down the Keystone XL pipeline. 

Rep. Mary Miller, IL (R):  

 Mr. Biden’s anti-energy agenda has caused the price of a gallon of gas to skyrocket to the highest average price of gasoline and diesel ever recorded. In my home state of Illinois, these prices were even higher than the national average. Instead of making it easier for American companies to increase domestic oil and gas production and hire more U.S. workers, Mr. Biden has shut down the Keystone XL Pipeline and begged OPEC and Russia to increase global output to ease rising prices. 

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A Canadian Indigenous leader is lending his voice to a Manhattan billboard campaign this month, hoping it will bring global understanding that the country’s energy industry is playing an important role in bettering the standard of living of many First Nations People in Canada.

“Partnerships with Canada’s energy sector offer an incredible opportunity to pull our next generation out of poverty,” said Dale Swampy, president of the National Coalition of Chiefs. “These partnerships advance the path of Reconciliation.”

Swampy, whose organization represents about 80 First Nations communities across Canada, hopes his message during New York’s Climate Week – one of the largest environment-focused events in the world – helps shine a light on the strong relationship many Indigenous communities have with Canada’s oil and gas and cleantech industries and the role economic and environmental partnerships have in the pursuit of Reconciliation.

“It’s important people also understand that the oil and gas industry is taking its commitment to tackle climate change seriously and that the inherent relationship our people have with the environment is helping projects to be developed more responsibly,” said Swampy.

Canada ranks number one among the world’s top oil reserve holders in all three areas of ESG –environmental protection, social progress and governance – according to international third-party assessments – and oil and gas employs more Indigenous people than any other industry in the country.

In fact, overall Indigenous representation in the oil and gas sector was more than 6% in 2019, according to Statistics Canada. For comparison, Indigenous peoples make up about 3.3% of Canada’s total workforce.

More and more First Nations communities and businesses are entering into equity partnerships and mutual benefit agreements on major pipeline and energy infrastructure projects. And Canada’s oil sands producers have spent $15 billion with Indigenous businesses since 2012, reaching a record $2.4 billion in 2019, according to the Canadian Association of Petroleum Producers.

“Yet unfortunately there are some coordinated groups who are preying on the desperation of some of our people to turn world opinion against Canada’s oil and gas industry,” said Swampy, a member of the Samson Cree Nation.

As a result, Indigenous communities lost out as governments have in the past bowed to extremist pressure and denied projects such as the Keystone XL and Northern Gateway pipelines, which would have brought hundreds of millions of dollars of economic growth to communities, he said.

The $65,000 campaign, sponsored by the Canadian Energy Centre (CEC), features Swampy and the simple message “Indigenous partnerships with oil and gas advance the path of Reconciliation.”

It will run Sept. 20 to 25 on three large outdoor electronic billboards in high traffic New York locations at Times Center, targeting Climate Week speakers, delegates and media.

CEC President and CEO Tom Olsen said Swampy has been an integral voice for Canadian First Nations involvement in beneficial equity partnerships.

“Dale has been a courageous voice for many years now on the important role First Nations leaders, businesses, and monitors can play in supporting stronger and more sustainable projects,” said Olsen.

“It’s time the world gained that understanding too.”

Quick facts:

• The oil and gas and mining sectors represent eight of the top 10 highest-paying occupations for Indigenous peoples for Canada, according to a report by the Macdonald Laurier Institute.
• Indigenous women earned three to four times more in wages from occupations in oil and gas than from median wages across all industries, according to the same report. In fact, oil and gas related occupations represent the top six highest paying occupations for Indigenous women in Canada, with pipeline transportation the highest.
• The Trans Mountain Expansion Project from Alberta to the British Columbia coast has signed mutual benefit agreements with 69 First Nations valued at over $600 million.
• The project has spent more than $3.2 billion with Indigenous-owned businesses ($1.3 billion in 2021 alone) and employed more than 2,100 Indigenous workers.
• Indigenous groups are seeking an ownership stake in Trans Mountain when the expansion is completed.
• Also in B.C., all 20 elected First Nations along the Coastal GasLink pipeline have signed project agreements.  And 16 BC indigenous communities signed an historic agreement to become equity owners in the Coastal GasLink pipeline, once it’s up and running.
• Together the LNG Canada project and Coastal GasLink have spent more than $5.1 billion with Indigenous and local businesses.
• The Haisla Nation on B.C.’s north coast is approximately 50 per cent owner of Cedar LNG, a proposed $2.4-billion floating export terminal that if built will be the largest First Nations-owned infrastructure project in Canada.
• Ksi Lisims LNGis a $10-billion proposed new Canadian natural gas export project near the Alaska border on the B.C. north coast owned jointly by the Nisga’a Nation, Rockies LNG and Western LNG.
• The B.C.-based First Nations Major Projects Coalition and Miawpukek First Nation on Canada’s East Coast are working together on the first-ever Indigenous equity participation in an Atlantic offshore project, called LNG Newfoundland and Labrador.
• Canada receives number one rankings in all three areas of environmental protection, social progress and governance among the world’s top oil reserve holders – according to assessments of reputable third-party performance indexes including the Yale Environmental Performance Index, Social Progress Imperative Index, and World Bank Worldwide Governance Indicators.

More examples of equity partnerships with First Nations communities can be found at the campaign website at responsiblecanadianenergy.com

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Overview

Building new oil export pipeline infrastructure over the long-term, such as the Trans Mountain Expansion (TMX), Keystone XL, Northern Gateway and Energy East, is critical to enhancing North American energy security and diversifying markets, especially to emerging and developing economies in the Asia-Pacific region.

Market diversification will result in Canadian oil fetching higher prices, reducing the discount on diluted bitumen prices (expressed as Western Canadian Select blend or WCS) relative to global benchmarks such as West Texas Intermediate (WTI) and Brent.

In this CEC Fact Sheet, we examine key metrics associated with the addition of new export pipeline capacity, including how this impacts market access, the oil price discount, global oil demand, and the accrual of benefits to the Canadian economy.

Canadian export pipeline expansion is needed for oil producers to meet rising global oil demand, particularly from emerging and developing economies

Additional Canadian export pipeline infrastructure is needed for oil producers and citizens to benefit from rising oil demand from emerging and developing economies over the next three decades.

According to the International Energy Agency (IEA), global crude oil demand is expected to rise from 96.6 million barrels per day (mb/d) in 2019 to 103 mb/d in 2050, an increase of 6.4 mb/d (IEA, 2021b).

Most of the increased crude oil demand growth is expected to come from emerging and developing economies, where consumption is projected to increase from 45.6 mb/d in 2019 to 63.2 mb/d in 2050, an increase of 17.6 mb/d, or nearly 39 per cent (see Figure 1) (IEA, 2021b).

Source: IEA, 2021(b)

Canadian crude oil production has the potential to take advantage of growing global oil demand

Canadian crude oil production is projected to rise over the next 30 years and has the potential to meet growing global oil demand.

According to the Canada Energy Regulator (CER), crude oil production under its Current Policies Scenario grows from 4.9 mb/d in 2019 to 6.6 mb/d in 2050, an increase of 1.7 mb/d, or nearly 35 per cent (see Figure 2) (CER, 2021).

Source: CER, 2021

Canadian crude oil pipeline exports continue to be strong

In 2020, the use of export pipelines to transport crude oil to U.S. markets continued to be strong, even in the face of COVID-19 and pipeline constraints, establishing the opportunity for new export pipeline infrastructure.

According to the Canada Energy Regulator (CER), in 2020, total crude oil exports from Canada were nearly 3.7 mb/d (CER, 2021).Nearly 88 per cent of those crude oil exports moved by pipeline – 3.21 mb/d in 2020, even with effects of COVID-19 lockdowns (CER, 2021).

Between 2010 and 2020, crude oil exports by pipeline grew from over 1.7 mb/d to over 3.2 mb/d, an increase of over 1.4 mb/d or 84 per cent (see Figure 3) (CER, 2021).

Source: CER, 2021

Canadian export pipeline expansion projects positioned to meet the needs of target U.S. and offshore international markets

Canadian export pipeline infrastructure expansion is needed to increase market share in target U.S. markets, which are hungry for heavy oil feedstock like WCS.

U.S. refineries are growing increasingly reliant on Canadian crude oil, including heavy oil from the oil sands. The total percentage of heavy oil that the U.S. imports from Canada as a share of all imports of Canadian oil has increased from 25.1 per cent in 2000 to 55.8 per cent in 2019 (see Figure 4).

Source: U.S. Energy Information Administration, 2021a

New export pipelines mean higher prices for Canadian oil on world markets

There is a price discount between the U.S. benchmark West Texas Intermediate (WTI) crude oil price and the Canadian benchmark Western Canada Select (WCS). This differential reflects the heavier quality of WCS relative to WTI and the additional costs associated with transportation of WCS oil to U.S. refining hubs in the Gulf Coast. Wider discounts occur when Canada is not able to get its oil to United States and Asian markets because of pipeline constraints.

New export pipeline capacity will reduce oil price discounts, diversify markets and see refiners compete for supply.

Additional export pipeline capacity would allow oil producers to receive up to US$7.00 per barrel more for their product. This could lift capital investment by an estimated $10 billion and impact real GDP by an estimated 1.5 per cent to 2 per cent. Higher production and prices would boost provincial royalties by up to $10.5 billion over six years (Government of Alberta, 2018).

Achieving world market access through new export pipelines has positive impacts on the Canadian economy

With market access achieved through the building and completion of export pipelines, new oil production will be able to be transported to export markets in the United States and emerging and developing economies, resulting in more jobs, higher labour incomes, and more royalties and income taxes for the federal government and the provinces.

In 2019, the Government of Alberta estimated that with market access achieved through the completion of Keystone XL, Line 3 and TMX, Canadian GDP would increase by about $19 billion annually, employment would be 50,000 jobs higher, and Canadian producers and governments would achieve $43 billion in increased income due to increased production and investment over five years (Government of Alberta 2019).

According to the Conference Board of Canada, the TMX project’s construction and first 20 years of operation would boost the Canadian economy by $160 billion and result in over $46 billion to government revenues. This includes $19.4 billion in Alberta, $5.7 billion in British Columbia and $21.6 billion shared by the rest of Canada (Conference Board of Canada, 2016).

Construction and completion of Keystone XL would have seen nearly 15,000 jobs created in Canada and the U.S., including jobs in associated trades, retail, and hospitality services. Keystone XL would have contributed approximately $2.4 billion to Canada’s GDP, and generated $30 billion in tax and royalty revenues for governments (Government of Alberta, 2021b).

The Canadian Association of Petroleum Producers (CAPP) estimated that over the first 20 years of construction and operation, the Energy East Pipeline would have generated over 14,000 jobs, $55 billion to Canada’s GDP, and $10 billion in federal and provincial taxes (Canadian Association of Petroleum Producers, 2016).

Northern Gateway was estimated to increase Canadian GDP by more than $300 billion over 30 years, increase government tax and royalty revenues by over $80 billion, with an estimated 5,500 on-site jobs during the construction phase, and about 1,150 long-term jobs during operations (Our Great Minds, 2014).

Conclusion

Recognized as a responsible and secure energy provider on the world stage, Canada is in a good position to benefit from the increased global demand for oil in the post-COVID-19 recovery.

While all oil is not of the same quality, Canada has an opportunity to reduce heavy oil differentials and make its oil more profitable by moving forward expeditiously with new pipeline projects such as TMX, Keystone XL, Northern Gateway and Energy East.

Appendix: Explaining the WCS-WTI Differential and its Impact on the Canadian Economy

WCS-WTI differential

There is a natural price discount between the U.S. benchmark West Texas Intermediate (WTI) crude oil price and the Canadian benchmark Western Canada Select (WCS) price. This differential reflects the heavier quality of WCS relative to WTI and the additional costs associated with transportation of this oil to U.S. refining hubs in the Gulf Coast. But even wider discounts occur when Canada is not able to get its oil to markets in the United States and the Asia-Pacific because of pipeline constraints.

The lack of pipeline capacity has meant and means a higher price differential between U.S. and world oil (West Texas Intermediate and Brent) and Canadian oil (Western Canadian Select). Without new pipelines, Canadian oil must be shipped by other methods such as rail, which means higher shipping costs and thus lower returns for producers. Without sufficient pipeline access, producers incur higher transportation costs shipping their crude by rail – about US$5.00 to $10.00 per barrel higher than pipelines. Without new pipelines to the west and east coasts for oil exports, Canada is still largely subject to one main export market, the United States.

Impact on the Canadian economy

This WTI-WCS price discount means that Canada is getting lower revenues per barrel for each barrel of heavy crude exported. The discount negatively impacts federal government corporate tax revenues, producers’ revenues, and provincial government royalty revenues.

The impact of the differential in oil prices between U.S. and world oil (West Texas Intermediate and Brent) and Canadian oil (Western Canadian Select) has been estimated by different organizations in recent years. The following have all accounted for quality differences in the oil (light versus heavy, for example) and other reasons a “natural” differential would exist, and then subsequently arrived at estimates of what pipeline constraints cost Canadian producers.

The Alberta Royalty Review Advisory Panel noted in its January 2016 report that discounts on Canadian oil prices due to constrained market access led to the loss of more than $6 billion in provincial royalties between 2010 and 2016. (Alberta Royalty Review Advisory Panel, 2016).

In February 2018, Scotiabank estimated that large price discounts in the range of $25 to $30 per barrel could cost the Canadian economy roughly C$15.6 billion per year, or 0.75 per cent of GDP, and even at $18 per barrel annual losses associated with transporting marginal crude by rail rather than pipeline would be in the range of $7 billion or about 0.3 per cent of GDP (Scotiabank, 2018).

The Fraser Institute estimated from 2013 to 2017, after accounting for quality differences and transportation costs, the depressed price for Canadian heavy crude oil resulted in $20.7 billion in foregone revenues for the Canadian energy industry. This loss, associated with an average price differential of U.S.$16.60 per barrel, was equivalent to almost 1 per cent of Canada’s national GDP in 2017. In 2018, depressed prices for Canadian heavy crude oil resulted in $20.6 billion in foregone revenues alone for the Canadian energy industry. This loss associated with an average price differential of U.S. $26.50 per barrel, was approximately one per cent of Canada’s national GDP (Fraser Institute, 2019).

The Government of Alberta estimated that, without sufficient market access, the Canadian economy lost almost $19 billion in 2018 due to steep price discounts. If no additional pipelines come online, Canada stood to forgo more than $43 billion in lost income due to reduced production and investment between 2019 and 2023, or almost $9 billion per year. The lost income translates into the loss of about 35,000 jobs per year across Canada. Steep discounts for Canadian crude also mean that Canadian consumers lose out. When domestic oil is sold at steep discounts compared with foreign crudes, domestic producers take a hit through lower revenue. Meanwhile consumers, and refineries importing foreign crude, pay higher prices based on international crudes. Money flows out of the country and lowers income for the entire nation. (Government of Alberta, 2019).

In 2020, IHS Markit noted:

that pipeline export constraints have contributed to larger differentials, and lower returns for Canadian crude oil, than otherwise would have been expected. Although the impact on differentials has been sporadic, had there not been any transportation constraints over the past half decade (2015–19), IHS Markit estimates that western Canadian heavy crude oil would have obtained, on average, at least $3.00 per barrel more compared with WTI, Cushing. The impact of this lost value over millions of barrels produced each day during the last past half decade is significant—about $14 billion (U.S. dollars). Moreover, this estimate is likely conservative, since it is based on differentials only in excess of the uppermost bound of the anticipated range and only considers the impact on heavy, sour crude oil (IHS Markit, 2020).

According to the Government of Alberta, under a scenario of no additional pipeline access, foregone resource revenues are estimated to be $4.9 billion between 2021-22 and 2023-24 (Government of Alberta, 2021).

Notes

This CEC Fact Sheet was compiled by Lennie Kaplan at the Canadian Energy Centre (www.canadianenergycentre.ca). The author and the Canadian Energy Centre would like to thank and acknowledge Dennis Sundgaard and an anonymous reviewer in reviewing the original data and research for this Fact Sheet. Photo credits: Coastal GasLink

References (all links live as of February 14, 2022)

Alberta Royalty Review Advisory Panel Report. <https://bit.ly/3o5ihxQ>; Canadian Association of Petroleum Producers (2016). Energy East: Everything you need to know. <https://bit.ly/3uPxMy8>; Canada Energy Regulator. (2021). Canada’s Energy Future, 2021. <https://bit.ly/3o5Mn47>; Canada Energy Regulator. (2021). Crude Oil Annual Export Summary – 2020. <https://bit.ly/3KSiBJS>; Canadian Energy Research Institute. (2020). Market Access – Oil Export Pipelines in Western Canada, 2020. <https://bit.ly/3rRfnfg>; Conference Board of Canada. (2016). Who Benefits? A Summary of the Economic Impacts that Result from the Trans Mountain Expansion Project. <https://bit.ly/3cRoNCZ>; Fraser Institute (2019). The Cost of Pipeline Constraints in Canada. <https://bit.ly/3u6ODw2>; Government of Alberta. (2018). Budget 2018. <https://bit.ly/3sRIbFF>; Government of Alberta. (2019). Budget 2019. <https://bit.ly/3cSAyJs>; Government of Alberta. (2020). Budget 2020. <https://bit.ly/3fHb4Rd>; Government of Alberta. (2021a). Budget 2021. <https://bit.ly/3fIsVY3>; Government of Alberta. (2021b). Investing in Keystone XL pipeline. <https://bit.ly/3sSc0Wp>; International Energy Agency (IEA). (2021a). World Energy Outlook (WEO), 2021. <https://bit.ly/3IHIMkH>; International Energy Agency (IEA), 2021(b). 2021 WEO Extended Dataset. <https://bit.ly/3D0OdZv>; IHS Markit. (2020). What is different about differentials? Understanding the price of oil in Western Canada. <https://bit.ly/3miVWuC>; Oil Sands Magazine. (2020). Market Insights, Assessing America’s Appetite for Canada’s Crude: Canadian Crude Usage by U.S. Refineries. <http://bit.ly/3aSWAtl>; Our Great Minds. (2014). The Northern Gateway Pipeline: Transporting Energy in a Transformative Direction. <https://bit.ly/3HT9Opa>; Scotiabank. (2018) Pipeline Approval Delays: The Costs of Inaction. <https://bit.ly/3o3UCxC>; U.S. Energy Information Administration (2021a). Percentages of Total Imported Crude Oil by API Gravity. <https://bit.ly/3n9zSD4>.

Creative Commons Copyright

Research and data from the Canadian Energy Centre (CEC) is available for public usage under creative commons copyright terms with attribution to the CEC. Attribution and specific restrictions on usage including non-commercial use only and no changes to material should follow guidelines enunciated by Creative Commons here: Attribution-NonCommercial-NoDerivs CC BY-NC-ND.

A senior leader with the U.S. Chamber of Commerce would rather see the U.S. focus on oil imports from Canada than other potential partners as the global energy security crisis from Russia’s invasion of Ukraine grows.  

“From a pure, selfish U.S.-centric viewpoint, we should be careful and very particular where we import from,” says Christopher Guith, senior vice-president at the chamber’s Global Energy Institute.  

“We have an administration that is currently begging OPEC, specifically Venezuela and potentially even Iran to increase production when Canada has significant spare capacity, especially long term, that could come online. But the takeaway capacity is not there, primarily because this administration revoked permits for Keystone XL on the first day in office.” 

Guith says U.S. imports of Canadian oil – which doubled between 2005 and 2019, according to the U.S. Energy Information Administration – have been a “godsend” for energy security.  

“If you look back over the last 25 years, bringing Alberta’s oil sands production online is the second most important advent to American energy security, second only to our own shale revolution. It transformed our energy economy incredibly and enabled us to push out OPEC imports,” he says. 

“It happened at the exact right time; 2005 was the lowest point of U.S. oil production in 60 years, and all of a sudden here comes our greatest trading partner to the north with essentially a rescue.” 

Oil supply from Canada isn’t just reliable. It also has economic benefits on both sides of the border, supporting jobs and helping lower consumer energy costs, according to a 2021 study published by the American Petroleum Institute (API).  

Researchers found that in 2019, absent supply of Canadian heavy oil, U.S. refiners would have spent about US$6.1 billion more to access and process other crudes. This improves profitability of the industrial sector, which adds value to the economy on both a state and national level.  

The main reason is that U.S. refiners have spent billions to tailor their facilities to specifically process heavy oil like what is produced in Canada, Guith says. 

“It tends to trade at a discount, so you can buy it more cheaply. It’s always going to be cheaper because it’s closer, so it doesn’t have to move as far,” he says.  

“And it’s coming from Canada, a liberal democracy that we have arguably the strongest relationship with out of the entire global community.” 

The U.S. itself has become an oil production powerhouse thanks to new technology used in shale deposits, with domestic volumes skyrocketing to 12 million barrels per day in 2019 compared to 6 million barrels per day a decade earlier.  

But it makes more sense that much of the U.S. oil is sold on global markets while U.S. refineries stick to Canadian heavy oil, Guith says.  

“It is more economic for the U.S. to export a good portion of the light, sweet crude that we produce and then import the heavy crude from Canada,” he says.  

“If we could get all that we needed, we wouldn’t even have to worry about Venezuela, or potentially Saudi Arabia, even Russia, other producers of heavy crude, but the lack of takeaway capacity limits the amount of crude that we get from Canada. And so, we have to turn to others like Russia.” 

U.S. imports of Russian oil and products reached a record 672,000 barrels per day in 2021, according to EIA data. But with a ban now in place because of the invasion in Ukraine, the U.S. is looking for other sources.  

It’s a long-term problem that renewable energy alone can’t solve, Guith says. But Canada can help.  

“You cannot make that transition happen any faster than the pace of innovation… Demand for that amount of crude is still there; Americans still need it to drive and to produce petrochemicals that we use. It’s just going to come from somewhere else,” he says.  

“As long as we’re going to be realistic and say we are dependent upon these sources of transportation fuel, we might as well get them from the cleanest sources, but also from freedom loving countries.” 

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In a statement this week Saudi Arabia announced it will not accept responsibility for any shortages in the global energy markets.  

As President Biden awaits a return call from Crown Prince Mohammed bin Salman of Saudi Arabia to discuss production increases, a recent poll shows that 71 per cent of Americans think Biden should reverse his decision to cancel the Keystone XL pipeline, while 64 per cent believe Canadian production should replace Russian oil.   

Biden banned all Russian imports of oil and gas products amid the war on Ukraine.  

The U.S. bought 640,000 barrels per day on average of oil and petroleum products from Russia between July and December, according to the latest data from the U.S. Energy Information Administration.   

The Keystone XL pipeline would have had capacity to ship 830,000 barrels per day from Western Canada to the U.S. refineries, starting in 2023.   

Instead of looking to America’s largest trading partner, Canada, to increase oil exports, the White House is turning to regimes like Saudi Arabia, Iran and Venezuela.    

Maintaining a secure and reliable supply of energy products has never been more important.    

US leaders continue to challenge the year-old decision to cancel the Keystone XL pipeline expansion project, calling for its reinstatement.   

Here’s what they had to say this week:    

House Whip Steve Scalise (LA) said: 

All Americans should ask – why won’t Biden unleash America’s energy industry? In his first days in office, the president killed the Keystone XL pipeline, which would have employed thousands of Americans and provided a crude oil source from Canada instead of Putin’s Russian crude. Democrats love to talk about how they are committed to reducing carbon emissions but fail to admit that the United States emits much less carbon to produce oil and natural gas domestically compared with the other countries that President Biden is begging to produce energy because we have much higher standards than those adversarial countries.   

Rep. Bob Latta (OH) tweeted:  

“Defending freedom is going to cost.” – @POTUS 

If only this admin had prioritized North American energy instead of canceling the Keystone XL pipeline, greenlighting Russia’s Nord Stream 2 pipeline & spending $17 billion on Russian-made energy – funding Putin’s attack on Ukraine. 

Rep. Matt Rosendale (MT) tweeted:  

President Biden cancelled the Keystone XL pipeline on his first day in office, his administration has blocked permits for energy development, and any new onshore or offshore leases have yet to be issued. 

American’s are suffering the consequences of Biden’s anti-energy agenda. 

Rep. Debbie Lesko (AZ) tweeted:  

According to the Biden Administration, canceling the Keystone XL Pipeline didn’t harm our domestic energy production and didn’t make us more dependent on Russia. 

FACT CHECK: The Keystone XL Pipeline could have safely transferred over 800,000 barrels of oil each day!  

Senator Marsha Blackburn (TN) tweeted:  

Actions speak louder than words, @JoeBiden. Open the Keystone Pipeline and make America energy independent again! 

Senator Bill Hagerty (TN) tweeted:  

This inflation is being felt by EVERY American, & the Biden Administration’s war on American energy started it. The way to fix this right now is for Joe Biden to come out & say today that we’re going to reopen the Keystone XL Pipeline & start drilling again here in America. 

Rep. Tim Burchett (TN) tweeted:  

In case you were wondering who shut the Keystone pipeline down it was the @POTUS. 

Rep. Scott Fitzgerald (WI) tweeted: 

While President Biden deflects blame for high gas prices, small businesses in Wisconsin are stuck with the consequences of our diminishing energy independence. Biden must boost domestic energy production…let’s start with finishing the Keystone Pipeline! 

Rep. Mark Green (TN) tweeted: 

The solution to America’s energy dependence issue is really quite simple. 

➡️ End Biden’s federal freeze on new oil/gas projects.  

➡️ Stop the regulatory assault on U.S. energy development.  

➡️ Continue building the Keystone XL pipeline. 

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