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Summary: This paper explores

the capacity of Canada to be an


energy superpower, analyzing
the rapid expansion of the Cana-
dian energy sector and exam-
ining possible export markets.
With the United States and
Asia become less dependable
as export markets, the authors
argue Canada should shift its
focus to Europe.
Transatlantic Security Task Force Series
Policy Brief
Canada as an Energy Superpower:
Myths and Realities
by Ferry de Kerckhove and George Petrolekas
German Marshall Fund of the
United States-Paris
71 Boulevard Raspail
75006 Paris
T: +33 1 47 23 47 18
E: infoparis@gmfus.org
October 2014
Introduction
In 2013, Russia sold to the European
Union and Turkey a record 162 billion
cubic meters of natural gas, out of
which 86 billion cubic meters tran-
sited through Ukraine. In compar-
ison, Canada produces 165 billion
cubic meters of (liquifed natural
gas) LNG annually, a fgure that is
expected to rise signifcantly in future.
Given the present situation and the
tensions between Russia and the
West, Europe, which is heavily depen-
dent upon Russian gas, understand-
ably fears potential supply cuts, and
some European countries are already
pleading for LNG exports from
North America. But were both the
United States and Canada to decide
to supply LNG to Europe mainly
Central Europe the frst shipment
of North American LNG would not
reach Europe until 2016. Many things
can go wrong between now and then.
Yet, a positive message would be a
huge contribution to not only assuage
the existing fears, but would free
Europe from some of the geo-political
constraints it is now feeling. Hence
there is a need to have a clear and
dispassionate look at the validity of
the North American option.
A European Option for Canada?
While considerable focus of late
has been on the transformation of
the United States from an energy
importer to a top producer of hydro-
carbons and a likely major exporter,
the role of Canada in the worlds
energy mix is ofen ignored, primarily
as Canadian oil and gas production
is subsumed statistically into North
American energy production and
consumption fgures. For reasons of
history and geography, most Cana-
dian production has found markets to
its south.
Te prime minister of Canada has had
a very diferent take, having argued
since 2006 that the country has the
resources and the capacity to become
an energy superpower. It would be a
serious mistake, in this day and age
of revisiting Europes dependency on
Russian oil and gas, to dismiss the
potential contribution of Canada to
Europes energy mix.
Canadas energy riches are divided
into three categories: oil (conven-
tional oil and oil sands), conventional
natural gas, and shale gas. Each are
covered below.
Oil Reserves
Te following graphics provide
a good snapshot of Canadas oil
reserves. Tese antagonized Euro-
pean lawmakers until the signing
of the Canada-EU Comprehensive
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Policy Brief
2
Economic and Trade Agree-
ment. Te fgures are telling:
it has the third largest proven
reserves in the world and a
likely output of 3.5 million
barrels a day by next year. But
the Achilles heel is clearly the
dependency on exports to the
United States. And the U.S.
market is giving Canada a lot
to think about.
Indeed and somewhat ironi-
cally, the Keystone debacle
an ongoing saga of delays
in the U.S. decision to allow
the transport of tar sands oil
from Canada to U.S. refn-
eries and the gas accord
between Russia and China
have put a series of dents
in Canadas energy export
outlook. Te United States is
no longer the assured market
Canada counted on even though there are 80 pipelines
between Canada and the United States and Keystone is
or would only be the 81
st
. Hope to export LNG and oil to
Asia has been stalled by pipeline and terminal construction
issues potentially with a price diferential. Te fnal dent is
Canadas fuctuating relationship with China (a phenom-
enon common to other Western countries).
Tus, Europe may actually become the market of choice.
Key, of course would be the speed at which Canada
could engineer its LNG export capacity a function of
expanding terminal capacity as the energy geography shifs
from a Canadian/U.S. market to overseas markets. Further-
more, Canada would prefer the European market now
that the European Commission has mellowed its take on
Canadas oil sands. It could be timely since several mega-
projects in Alberta have been temporarily shelved such
as the $11-billion Joslyn North oil sands mine and Royal
Dutch Shells 200,000 barrel-a-day Pierre River mine.
A Glance at the North American Oil Market
While it is undeniable that the North American energy
picture is being transformed, there are still a lot of uncer-
tainties out there. And while the United States is becoming
a major gas exporting country it even accounts for 16
percent of the gas requirements of the Canadian province
of Ontario it will still depend on energy imports for
years to come, albeit at a lower level. But the evolution of
the hydrocarbon situation in North America will force
Canada and, to a certain extent, the United States as well, to
rethink the North-South policy framework and reevaluate
the East-West options. Canada is defnitely embroiled in
difcult domestic debates on that score. Canada also needs
to develop LNG export facilities (see Figure 3). While
Mexico is quantitatively a large player, it is somewhat tech-
nologically challenged in the present equation and needs
a major restructuring of its industry even from a constitu-
tional perspective since Pemex accounts for one-third of
the Mexican governments budget.
Globally, both tight or shale oil in the United States and
oil sands in Canada ofer huge opportunities and raise new
issues, including the quest by industry for new markets
and the need for very large production investments. As
Professor Monica Gattinger
1
points out, the issues are
complex from a market perspective, including environment
impacts, energy security concerns, dependency issues,
1 Monica Gattinger, Securing Canadas Energy Future, March 21, 2013, Atlantic Council
of Canada Conference.
Figure 1 Alberta Oil Sands
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3
until the Keystone pipeline
ripped apart the blissful
picture. Yet, opportunities
remain signifcant despite the
changes, including a reduc-
tion in U.S. imports by half.
Te real issues are infrastruc-
ture constraints
2
and the risk
of the bonanza tapering of
faster than predicted. Both
Canada and the United States
are looking at expanding their
LNG export capacities but
have to resolve infrastructure
and environmental/policy
issues. Of course, there will
always be the more expensive
option for both countries of
developing Northern/Alaskan
resources (this might also
require the United States and
Canada to imitate perish
the thought Russia and
Norway and conclude an
agreement on northern mari-
time boundaries).
Clearly, Canadas energy
strategy will be very much
dependent on the dynamics
of the market. For instance,
today, since its export market,
including most of its refning,
is nearly totally dominated by
the United States, the price
at which Canada sells its oil
is that of a price-taker. Tus,
Canadas oil from oil sands
sufers a discounted price
(West Texas intermediate
vs. Brent Crude instead of
Western Canadian Select) due
to glut and pipeline shortage.
For the longer term, demand will continue to grow as
per OECD projections, but Canada has no choice but to
2 Railway transportation of oil is the most ineffcient method of all, yet oil is shipped
by train from the North Dakota Bakken oil feld to New Brunswick on Canadas Eastern
Seaboard.
Figure 2 Dependence on U.S. Oil Trade
Figure 3 North American LNG Import/Export Terminals
infrastructure build-up and protection, social acceptability,
and government policy and regulations.
Te energy relationship between Canada and the United
States, being market based and covered by the North
American Free Trade Agreement (of note: Pemex is
exempted from the NAFTA provisions) were pretty smooth
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develop alternative markets. Te question is where. As to
what, LNG seems to be the answer.
Conventional Gas and Shale Gas
Canadas conventional gas production, although important,
is decreasing as Figure 4 demonstrates.
3
It is important to
note that while conventional gas production is declining,
conventional gas production overall exceeds Canadian
domestic consumption, which is what provides a modest
glut for export to the United States. However, Canada,
3 http://commonsensecanadian.ca/shale-gas-lng-exports-elephant-room/canadian-
gas-production-ziff-aurora_/.
Figure 4 Canadian Gas Production to 2050
much like the United States, will have to develop its shale
resources if it wants to become a key international energy
player. And the resources exist if they are developed.
Canada must fnd markets beyond the United States for its
gas as the latters imports of Canadian natural gas decline
(see Figure 5). Tis is a function of the United States having
increased its proportion of shale based gas in its overall
production volume; in Canada, the shale gas exists, but has
not been developed as extensively.
Canada is therefore only in
the early days of shale gas
development, given that
conventional gas meets
current domestic require-
ments and still provides some
export revenues with the
United States (see Figure 6).
Figure 7 may help explain how
revolutionary shale gas may
be in the production of geopo-
litically secure energy supply.
North America accounts for
about one-half of the worlds
estimated shale gas reserves.
Canada alone has nearly 10
percent of the worlds proven
reserves, and with a popula-
tion of only 33 million people,
capacity will far exceed
domestic gas requirements. As
a result, Canada, and for that
matter North America as a
whole, represents the greatest
source of a politically secure
energy supply for Europe.
Asia May Not Look As Great
As Once Thought
As a Canada Asia-Pacifc
Foundation report of June
2012 underscores,
4
At
present, Canadas economic
relationship with Asia is at
best embryonic. As Canadians
4 http://www.asiapacifc.ca/sites/default/fles/flefeld/canada-asia_energy_futures_
task_force_-_fnal_report_2.pdf
Figure 5 U.S. Natural Gas Net Imports from Canada (billion cubic feet per day)
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5
work to build and expand that relationship, and to attract
Asian investment in their economy, potential trade in
energy commodities, technologies and expertise provides
a wealth of opportunities. Our energy resources are abun-
dant but underutilized, while Asias demand for energy is
voracious and growing. However, these opportunities will
be realized only if the supporting policies, infrastructure,
and public support can be put into place.
Te report also emphasizes that instability in traditional
oil-exporting nations is prompting major Asian energy
importers especially China,
Japan, and Korea to look
for alternative sources of
supply. Events in the past
year indicate the gas supply
equally sufers from some
instability.
Investment from Asia in
the Canadian hydrocarbon
industry has grown and Asia
is clearly the area of growth
in the world. So it is perfectly
logical for Canada to look
at Asia as the outlet for its
energy resources. But at the
same time, it should not
become totally dependent on
the Asia market as conditions
can change e.g. the recent
oil and gas deal between
Russia and China, which
makes Canadian energy,
temporarily at least, far less
competitive. British Colum-
bias hopes for a partnership
with the province of Alberta
to become a major exporter
of LNG and oil may have
been delayed as Canada deals
with domestic impediments
such as First Nation land
rights. And U.S. competition
will also become a major
factor, which would call for
a greater diversifcation of
markets and product ofer-
ings.
Since China controls world oil and gas production facili-
ties equivalent to the yearly oil output of Kuwait (3 million
barrels a day), there is an additional danger in being too
close to a country that is not guided by market rules for its
energy supplies. Since the sale of Nexen to China which
failed to acquire UNICAL of the United States 18 months
earlier the Canadian government has adopted some
slightly tougher policies with respect to foreign takeovers
of Canadian energy companies, but it still lacks a solid
instrument of control.
Figure 6 Shale Gas as Share of Total Dry Natural Gas Production (2012, billion cubic
feet per day)
Figure 7 World Shale Gas Reserves
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6
Tese are some of the reasons why LNG companies in
Canada are looking seriously at export projects to Europe
from the East Coast.
5
Te Australian company Liquefed
Natural Gas Ltd. is looking at a Nova Scotia development to
ship LNG to European ports starting in 2016. Te govern-
ment of Canada also recognizes the shif in North Amer-
ican LNG projects: As unconventional gas production
increases, the U.S. is becoming increasingly self-sufcient
with respect to natural gas. Pipeline exports from Canada
to the U.S. are decreasing. With ample unconventional
resources, industry is shifing its focus from importing
LNG into North America to exporting LNG from North
America.
6

Tere is therefore some hope that Canada will become a
player in the European market and this would be sound
both politically and economically.
5 There are already some LNG export deals between Canada and Germany slated to
begin in 2020 with shipments from Halifax.
6 http://www.nrcan.gc.ca/energy/natural-gas/5683.
Te views expressed in GMF publications and commentary are the
views of the authors alone.
About the Authors
Ferry de Kerckhove is a senior fellow at the Graduate School of Public
and International Afairs, Faculty of Social Sciences, University of
Ottawa; a member of the Canadian Defense and Foreign Afairs
Institute; and a member of the Board of the Conference of Defense
Associations Institute. From 2008 to 2011, he served as Canadas
ambassador to Egypt.
George Petrolekas spent most of his army career in mechanized units
rising to command of a regiment. Most recently, he has served as a
strategic advisor to the current Canadian Chief of Defence Staf on
the Afghan detainee fle. As a marketing executive he has had exten-
sive experience in high technology medium, and start-up enterprises
in the telecom sector.
About GMF
Te German Marshall Fund of the United States (GMF) strengthens
transatlantic cooperation on regional, national, and global challenges
and opportunities in the spirit of the Marshall Plan. GMF does this by
supporting individuals and institutions working in the transatlantic
sphere, by convening leaders and members of the policy and business
communities, by contributing research and analysis on transatlantic
topics, and by providing exchange opportunities to foster renewed
commitment to the transatlantic relationship. In addition, GMF
supports a number of initiatives to strengthen democracies. Founded
in 1972 as a non-partisan, non-proft organization through a gif from
Germany as a permanent memorial to Marshall Plan assistance, GMF
maintains a strong presence on both sides of the Atlantic. In addition
to its headquarters in Washington, DC, GMF has ofces in Berlin,
Paris, Brussels, Belgrade, Ankara, Bucharest, and Warsaw. GMF also
has smaller representations in Bratislava, Turin, and Stockholm.
Contact
Dr. Alexandra de Hoop Schefer
Director, Paris Ofce
German Marshall Fund of the United States
Tel: +33 1 47 23 47 18
Email: adehoopschefer@gmfus.org