The road ahead for Canada-U.S. energy integration
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Energy integration or energy dominance?
The Trump administration may be slowly folding those ideas together, as it finds the U.S. can’t truly go it alone, even on energy.
I’ve spent the past couple of days in Washington, and heard more signals from Americans that energy integration, especially with Canada, is gaining ground. The Administration is now fully aware that more oil, gas and electricity flows north and south, between the U.S. and Canada, than many had thought, but the real key to integration is how energy supply chains have evolved over the past 20 years. In that period, the U.S. and Canada have together become the world’s largest producer of both oil and gas — and much bigger than even the Saudis and Russia combined. That’s led to better energy security, but also better energy economics, as everything from the steel for pipelines to AI systems flow across our border.
That doesn’t mean the road ahead will be smooth, especially as the oil outlook grows more challenging:
— Growth in oil demand is looking to hit a 20-year low in the U.S. this year, hit by a slower economy, low population growth and growth in EV sales;
— That could lead to sensitive cuts in U.S. production, as Canadian oil is cheaper. That could be a big test for our integrated markets;
— Another tension to watch: we’ll see if oil companies continue to invest in new production, as prices drop, or distribute their profits more to shareholders. Recent trends suggest the latter;
— Signals from Saudi Arabia and OPEC suggest the rest of the world also will have more oil than is needed, further depressing prices. Iraq, Venezuela and Libya are expected to add to the supply;
— China’s relentless growth in electric vehicles is driving down its demand for oil — a trend that could accelerate even more if China persuades other fast-growing countries to buy its low-cost EVs.
There are other shifting variables that could offset some of those demand pressures:
— Sustainable aviation fuel is struggling;
— Heavy vehicle operators are showing a reluctance to electrify their fleets;
— Biofuels will be challenged the [if] Trump administration cuts subsidies;
— The Administration also may look to strengthen inventories, including for diesel, jet fuels and petrochemicals, especially if tensions with China worsen.
Those who expect further integration of North American energy systems don’t expect it to be radically different, but rather a deliberate and respectful approach.
That, of course, will depend on more than the White House’s view. As Canada looks to expand export infrastructure, the U.S. won’t be the only one seeking more independence.
Note: This piece was originally published on LinkedIn and is used here with the kind permission of the author. For more, please visit RBC’s Thought Leadership page.
