Mind the Energy Security Gap: How Dependent is Canada on the US?
This week, Peter and Jackie discuss Canada’s energy security weaknesses for crude oil, natural gas, refined petroleum products, and electricity.
First, they cover recent news, including the latest on US tariffs, the Canadian Prime Minister’s Canada-US Economic Summit held on February 7th, Mark Carney’s Climate Plan, interprovincial trade barriers, and the need to attract private capital to invest in expanding Canada’s energy infrastructure, such as ports, pipelines, rail, and transmission lines.
Next, Peter and Jackie consider Ontario and Quebec’s heavy reliance on crude oil and natural gas transiting through the United States. They also discuss Canada’s imports of refined petroleum products and cross-border electricity trade.
Content referenced in this podcast:
- Mark Carney Climate Plan
- CAPP Data Centre “Canadian Imports of US Crude Oil, Natural Gas and Refined Products”
- Peter Tertzakian’s story “The Long Way Around” also on Apple Podcasts
- Financial Post, July 2020: “Cenovus first to announce it’s shipping Western oil to Eastern refineries through the Panama Canal.”
- EIA blog that Canada and US trade in electricity is close to balanced (November 2024)
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Episode 272 transcript
Disclosure:
The information and opinions presented in this ARC Energy Ideas podcast are provided for informational purposes only and are subject to the disclaimer link in the show notes.
Announcer:
This is the ARC Energy Ideas podcast, with Peter Tertzakian and Jackie Forrest, exploring trends that influence the energy business.
Jackie Forrest:
Welcome to the Arc Energy Ideas podcast. I’m Jackie Forrest.
Peter Tertzakian:
And I’m Peter Tertzakian. Welcome back. So I think we have to endure talking about tariffs yet again, but I promise our audience next week we’re going to have a little more fun.
Jackie Forrest:
That’s right. Wait for that.
Peter Tertzakian:
Wait for next week. But we are on the, it’s not even the eve, we’re on the… Just recording this as President Trump is announcing his reciprocal tariffs. So we’ll see where that takes us. But there’s plenty to talk about even without him announcing those.
Jackie Forrest:
Right. So it’s February 13th and we are running this podcast a little later, so keep that in mind if there was breaking news after.
Peter Tertzakian:
I guess this is his Valentine’s Day present to all his trading partners.
Jackie Forrest:
Yeah, yeah, that’s Trump’s-
Peter Tertzakian:
Showing some love. Showing some love.
Jackie Forrest:
All right, well let’s get into the news, so much to cover. First of all, I was fortunate, and Peter, you also went to the Prime Minister’s meeting-
Peter Tertzakian:
The summit, yeah.
Jackie Forrest:
…summit last Friday in Toronto where he brought together people from across the country to talk about what we could be doing in the face of the situation with the Americans. Of course, our prime minister announced that we are going to do countervailing tariffs, now we’re finding out today we’re going to be getting reciprocal tariffs. It’s like tariffs on tariffs on tariffs now. But the discussion was more around, well, what else should Canada be doing? What can we do that’s in our control? And it was about 150 people there and it was interesting just to hear from other sectors .and unfortunately there’s a lot of commonality. Things like we just can’t get stuff done, things take too long.
Peter Tertzakian:
Yeah.
Jackie Forrest:
Hard to attract capital. So that was not great to hear, but also great to hear that we’re actually trying to solve some of these problems.
Peter Tertzakian:
Yeah, I think the idea, and I think this is now an overused word, wake up call has resonated amongst the audience, which was composed of business leaders, union leaders, all sorts of other stakeholders in the Canadian community that were assembled in Toronto with the Prime Minister and also the Prime Minister’s Council on US-Canada relations, which I was also appointed to.
And yeah, I thought it was a really good opportunity to interact with other industries and people. Particularly I found our interaction with the agricultural sector very interesting because there’s such commonality in terms of the issues of trying to transport food and agricultural products for export, the challenges that are faced, the inter-provincial challenges, and this whole idea of how much GDP and productivity we can liberate if we just figured out how to trade amongst ourselves as provinces without inter-provincial tariffs and barriers.
Jackie Forrest:
Yes, yeah.
Peter Tertzakian:
That was a huge thing. And actually, okay, I’ll use the word again, a wake -up call for me. That, okay, I knew this was an issue, but until recently I didn’t realize how big an issue inter-provincial barriers are.
Jackie Forrest:
And actually some of the, it’s all micro details, some of the stories people said were just crazy. Like semi trucks needing to stop between provincial borders to change tires because the tire requirements are different. Change warning labels, sometimes they’re allowed to only travel at night, other places only in the day. The inefficiencies we have in our economy and that we just haven’t solved. And by the way, after the meeting I looked at inter-provincial trade, there are estimates that it could increase GDP if we could just get rid of all of these barriers, it could increase GDP about 4%, where the Trump tariffs, the first 25% would reduce our GDP by 2%. So we could more than offset the impact of something like a 25% tariff from the Americans by just trading freely amongst ourselves. Why aren’t we doing this?
Peter Tertzakian:
Well, it also solidifies or strengthens, I think is a better word, our own internal supply chains, which is really important in a de-globalizing world. And we’ve talked about that. It’s just super important that we become much more secure in our own ability to serve ourselves. Whether there is external factors like pandemics and things where we found ourselves short of certain types of products that we had to import. But maybe that’s not a good example, but certainly the world of energy, of oil and gas. I mean the idea, again, we’ve said it so many times in the shows that we are the largest exporter to the United States. You’d think we would be energy secure in central Canada, particularly Ontario, Quebec and New Brunswick. But no, they import the bulk of their oil and have their natural gas from the United States. So we’re hostage to that situation. If we had cross-country energy ease type pipeline, we would be far more energy secure, have sovereignty and control over our resources in the event of macroeconomic or global geopolitical events.
Jackie Forrest:
All right, and we’re going to get to that in more detail actually. That’s the second part of this podcast is to explain. Because what we’re also finding in our conversations over the last few weeks is although you and I have been talking about this quite a lot, this lack of energy security, it’s not well known across Canada.
Peter Tertzakian:
No, not at all.
Jackie Forrest:
So we want to talk about that in more detail. Another term that came out of the meeting last Friday, that’s the February 7th meeting with the Prime Minister, we need more trade enabling infrastructure. So that’s pipelines for our gas and oil, but also apparently our rail is really bottle-necked and we could use way more capacity on rail. And our ports-
Peter Tertzakian:
Our ports.
Jackie Forrest:
…need a lot of capacity. And then transmission lines. So there was an idea that was raised at the meeting, we need an emergency order just like the Americans are doing. They’re saying wartime measures, emergency order, we’re going to build things very quickly. Could we do that? And I’m going to get into it, but I was doing some research about our energy security and our Trans Canada mainline, that’s the gas line that travels on Canadian soil from Western Canada all the way to Ontario above the Great Lakes-
Peter Tertzakian:
Yeah, over the shield, yep.
Jackie Forrest:
…providing energy security, that was built in two years. Okay, so we can… And that’s going through the rock and everything. How do we get back to building things in two years, not 10 years?
Peter Tertzakian:
Yeah. How do we permit in less than, what is it, 7 or 10 years with no guarantee that it is not going to be challenged. The granted permits are not going to be challenged in a court or otherwise obstructed. I mean this is challenging. It’s not even getting to an investment decision, let alone construction .like power lines, I’ve heard numbers like to get a big transmission line approved takes seven years. And that’s not probably every single one, but a lot of them. And if you wanted to build a cross-country energy corridor and electrical power, then you have all sorts of cross-provincial border regulatory considerations and permitting and all sorts of things. We need to streamline this.
And actually that was a consensus in that meeting last Friday or Friday the 7th of February. That yeah, we need to figure out how to speed things up because time is money.,Time that drags on is uncertainty and nobody’s going to invest in that kind of thing.
Jackie Forrest:
Yeah. And we need to attract capital to this country because you know what? It’s all going other places, especially now with the Americans making investment potentially a lot easier while rolling back some of these requirements. Another thing that was talked about was finding new trade partners. And after the meeting I did a bit more research on that and it was interesting to find out, in 1930, the Americans did the same thing to us. 19% tariff on Canadian imports of something like 20,000 goods. And at that time we as a country went out to the UK and our Commonwealth partners and really tried to increase our trade and we massively increased our trade with some of our [inaudible 00:07:47] partners. And I think that has to be another thing. And the prime minister talked about that.
Peter Tertzakian:
Yeah, I think that that’s important, increasing trade. But to do that, you need to build the infrastructure to get the goods overseas-
Jackie Forrest:
Right, we need the ports. Yeah.
Peter Tertzakian:
…you need the ports and things. And that was a big part of this conversations that I had, you had at the summit. So the will is there, definitely there was a patriotism in the room, there was a will in the room, there was a sense of urgency in the room. But I think that’s all fine, now we actually have to act. We have to act and follow through because we’re going to need the investment dollars to pay for it all. And we don’t necessarily want to dip into our deficit-ridden treasury to do that. We want private capital to come in, even our own private capital, get our investors confident enough to invest in these sorts of projects. Our companies are big companies, whether they’re big pipeline companies or rail or other companies, to have the confidence that if they get a permit, for example, that permit is a final decision.
Jackie Forrest:
Mm-hmm. And they don’t have to wait by the way, five years and spend hundreds of millions, if not a billion dollars, trying to get that permit only to find out that they got a no. So we’ve got to change this so that private capital actually wants to go here. It cannot look like the trans mountain where it took over 10 years and it ended up costing three times more. And throughout that 10 years, more and more requirements came on the project. It has to be very clear up front what is your requirements and then you can know what it’s going to cost and you can build it quickly. Because extending out these construction periods is a way to make things more expensive.
Peter Tertzakian:
Right.
Jackie Forrest:
So doing it quickly, it’s easier to stay on track.
So talking about trying to attract more capital to this country, Mark Carney, who is in the liberal leadership process right now, put out a climate plan. And I have to say, I don’t think this climate plan is going to be attracting money into Canada. And so I thought we should talk about it a little bit in terms of the details.
Peter Tertzakian:
Yeah, I think it’s important that everyone understands the different positions of those that are running in the liberal leadership. There’s Mark Carney, Chrystia Freeland are in the leadership. I mean, Mark Carney is appearing to be the anointed one and we’ll have to wait until March 9th to know that he has put up on his website his latest policy position.
But if you look at what’s happening in the United States, okay, that’s extreme pulling out of the Paris Climate Agreement, shredding all sorts of policies. But if you look at the Europeans, even yesterday there was articles… There’s almost an article every day about how the Europeans are realizing, okay, if we are going to get their own infrastructure built in the geopolitical realities that they are going to also have to relax. And maybe relax isn’t the right word, I would argue the right word is rethink their carbon policies to be more investor friendly for the expansion that’s needed.
Jackie Forrest:
Mm-hmm. And we have to compete for capital, because people are going to put their money in the US by the way, where you don’t get all these tariffs or maybe there’ll be some countervailing tariffs here, but I think there’ll be less tariffs. And we’re just learning, we’re getting layers and layers of tariffs here with the poor steel industry having 25 and now an additional 25 and now another reciprocating one. So we have to be even more competitive than ever. And so let me just go through and I will put a link to this. It’s quite a detailed policy platform actually.
Peter Tertzakian:
This is Carney’s, is it?
Jackie Forrest:
Carney’s, yeah. So he’s talking about replacing the retail consumer carbon tax with subsidies that consumers can buy green technology. Okay, that sounds good. People don’t like the carbon tax and he’s kind of ran on this position that he’s getting rid of the carbon tax. But actually we’re going to get a lot more carbon policy because he’s going to strengthen the industrial emitter program, make it more stringent, put in things like more methane rules, implement the oil and gas cap, have industry pay for consumers to buy green technology. So the burden of this, the carbon problem, is going to fall on industry. That’s more cost for industry. He’s talking about a new taxonomy for companies that are operating in Canada around greenhouse gas and a mandatory reporting requirement. And here’s another really big one. He wants to put a carbon border adjustment tax so that everything that comes into the country, if it’s not low carbon, you’ll have to pay a carbon tax. That’s like a tariff on everything coming into this country, a carbon tariff you could call it, but increasing the cost for Canadians for buying imported goods that are not the lowest carbon goods.
So I’m very concerned by that, especially because the reason you put a border adjustment tax on is because inside your country the carbon policy is very stringent and adding more cost to your industry. And so you don’t want imports to come in from other countries that don’t have that and therefore are more competitive than yours. But here’s the thing, we are a net exporter of almost everything. So you’re going to impose a bunch of very strict and costly industrial carbon tax on our companies. We’re not going to be protected by a border adjustment tax because we need to sell more than we… We don’t just sell to consumers in Canada.
So I’m really concerned by, again, this is a bygone era. We’re in a world where we need to compete for capital. And this is concerning to me.
Peter Tertzakian:
Yeah. Now this does not necessarily mean that we can’t have a carbon emissions reduction trajectory as a consequence of this. It just means that you have to rethink how that’s going to be done. And if you think about, say countries like China and others, they don’t have carbon taxes, they don’t have carbon [inaudible 00:13:10] drilling. Yet they are leaders in batteries, EVs, solar panels, I mean you name it. That is in the world of decarbonization or clean tech or whatever you want to call it.
They’re achieving that through industrial policy. They’re achieving that through subsidization and incentivization of their big industries and their companies to be leaders in the space. And so to me, as I look at the history of energy transitions, this is a far more effective and what I would call a stronger force of change when transitions are done as a consequence of industrial policy, particularly if that industrial policy is affected by geopolitical realities such as we are in today as opposed to energy transition that is a consequence of environmental policy, which on its own historically is a relatively weak force of change.
So we have to rethink how we approach this. And if we have the mindset here of implementing an industrial strategy, that serves also the purposes that we talked about earlier, building out the infrastructure and the ports. So obviously the podcast is too short here to really get into the details, but I would just offer to you a complete rethink is necessary. And I think that rethink is going on in other western regions and countries. And if we stick to the old paradigms, I think we’re going to lose certainly capital, we’re going to lose all sorts. We’re not going to become competitive in the world that’s emerging.
Jackie Forrest:
Well, let’s just talk about our reality here, the new reality. The Americans are talking about taking us over. We need urgently to get people to build pipelines, to expand our ports so that we can sell more things to other people and become more resilient. And now we’re talking about putting border adjustment taxes on, and we know the government can’t pay for all of this. We need to attract capital. So anyway, I’m really on my soapbox with this one, Peter, but this one’s got me fired up. It’s just like it’s a new world where Canada sovereignty has to be something that is a focus.
Peter Tertzakian:
Yeah. Well, let’s talk about that sovereignty again. I know I touched on it in the introductory part of the podcast. We’ve talked about it so many times before. Let’s talk about it again. Because at the summit there was many people that were surprised to know, many people from the Toronto area or Toronto, Montreal, that were surprised to know that they are getting most of their oil and gas from the United States.
Jackie Forrest:
Yeah, so let’s talk about that. And we are going to put a link in the show notes. CAPP, the Canadian Association of Petroleum Producers, put out a slide deck on their data center, the CAP data center, and it actually goes through a lot of the details. So I encourage people who are interested in this topic to go through that slide deck. We’ll just hit the kind of highlights of it.
But we are really dependent on the US in a couple of key areas for crude oil, natural gas, and refined products. So for crude oil, New Brunswick imports about 165,000 barrels a day of crude oil from the US. I see that as less of an energy security issue in that they could import crude oil from other places if the US somehow wasn’t going to sell it to us anymore. Because they’re on the Tidewater, so they have options.
But Quebec and Ontario are actually the concern. And if you just look at the US import data, it actually understates the reality. Because Ontario gets all of the crude oil that they consume transited through the United States. Actually, the majority of that crude oil is Canadian produced crude oil, but it comes under the Great Lakes and comes back around and crosses into Ontario between Lake Huron and Lake Erie for one of the major pipelines.
And so this is the concern is that in the case, worst case scenario here where the Americans are taking us over, they want to really kind of hurt our country, they have the ability to stop all crude oil flows to Ontario. And then this pipeline, it’s called Line Nine, it actually continues on and delivers crude oil into Quebec, into Montreal. So about 60% of the crude oil that’s consumed in Quebec is also transiting through the United States and then through this pipeline called Line Nine that delivers into Quebec.
Now, Quebec does have more options in the worst case scenario because they have the St. Lawrence there, and they can deliver crude oil through the St. Lawrence in the worst case scenario. But Ontario has no real near term options.
Peter Tertzakian:
There’s no real recourse. I think the message is we lose control of it because we don’t have sovereignty over those pipes.
Jackie Forrest:
It’s just probably worth mentioning that this Line Nine that connects Ontario with Montreal today and takes the Western Canadian crude oil out to Quebec was built after the oil crisis and the OPEC embargo as a way to bring Western Canadian crude oil into Quebec. Because what we found, and I’m going to get to your story the long way around, is there was no way to get Western Canadian crude oil to Eastern Canada. But the problem with it is it’s only energy secure if the Americans are our partners and friends, because it goes through the US and so it is a big vulnerability.
So Peter, you wrote a story called The Long Way Around. We’ve actually talked about it on the podcast before-
Peter Tertzakian:
We’ve talked about it, yeah.
Jackie Forrest:
….we’ll put a link to… You have both the audiobook and the written-
Peter Tertzakian:
Yeah.
Jackie Forrest:
…book on your website. But just tell us a little bit about it.
Peter Tertzakian:
Yeah, well, I wrote the story, I don’t know, half a dozen years ago. It’s always intrigued me. I first caught onto it probably a dozen years ago. Because during the 1973 and ’79 oil price shocks, particularly the ’79, countries started to hoard oil. And so we did not have access in central Canada, Ontario and Quebec in particular, to Western Oil when we needed it the most. So what happened was the oil that went through the Trans Mountain Pipeline at that time to Burnaby, we leased some Greek tankers and those Greek tankers basically took the oil through the Panama Canal all the way around to the east coast of Florida, up the coast and delivered to Canada by ship/
Jackie Forrest:
Right.
Peter Tertzakian:
[inaudible 00:19:05]-
Jackie Forrest:
It was 14,000 kilometer journey versus 3,600 kilometers if we could have just gone direct.
Peter Tertzakian:
Yeah. So I’ve always thought that this is just absurd. We are not energy secure, I’ve been saying this for a long time. When the oil price shocks retreated and the hoarding stopped, then we were maybe be able to get back to normal. But we didn’t really learn the lesson that we need to be more energy-secure.
Now, recently I’ve changed my thinking. Oh and by the way, another important thing is that in 2020, Cenovus and Irving Oil redid the route.
Jackie Forrest:
On Canada Day.
Peter Tertzakian:
On Canada-
Jackie Forrest:
In 2020.
Peter Tertzakian:
…in 2020.
Jackie Forrest:
Yep.
Peter Tertzakian:
And we can post an article on that as well where they took oil from the Trans Mountain pipeline, the yet unexpanded Trans Mountain pipeline, all the way around the Panama Canal up to an Irving refinery.
So again, it just pointed to me that, okay, that’s interesting. It seems absurd that we have to do that 14,000 kilometers versus just straight across. But what’s interesting is that you can ship oil anywhere on a tanker for around two bucks a barrel at most, right?
Jackie Forrest:
It might be more expensive through the Panama Canal though ’cause you need smaller ships and there’s a cost for going through the Panama Canal-
Peter Tertzakian:
Okay, Whatever it is, two bucks, three bucks. It’s actually probably cheaper than the cost of even amortized of building the pipeline.
Jackie Forrest:
Yeah, but it doesn’t have a lot of energy security.
Peter Tertzakian:
No it doesn’t-
Jackie Forrest:
If we’re in war.
Peter Tertzakian:
…have nearly as much energy security. But if we wanted to have greater independence and less potential influence of our oil as it transits through the United States, if things get really heated up, we could do that. We could do that. And we could do that fairly quickly. It would involve having to reverse Line Nine from Quebec City all the way back to Sarnia
Jackie Forrest:
Yeah, to get the oil into Ontario. So that same line that today is taking crude oil from the Enbridge main line into Ontario, this Line Nine into Quebec. Could be reversed. It wouldn’t meet all of the crude oil requirements. It’s not quite large enough.
Peter Tertzakian:
Yep.
Jackie Forrest:
But it could meet a big part of it. You’d probably need rail as well for Ontario. And then of course our eastern refineries, they can get access to tankers. But yeah, it’s not the most efficient.
Peter Tertzakian:
Look, it’s not optimal, it’s not efficient. In the worst case, and we were talking about this by the way, when there was talks that Michigan was going to shut down Line Five. When was that? That was sort of-
Jackie Forrest:
’21, that was a big threat.
Peter Tertzakian:
2021 [inaudible 00:21:33].
Jackie Forrest:
So this is not a new thing.
Peter Tertzakian:
It’s not a new thing. So tariffs or no tariffs, there is a real vulnerability here. And so to me, okay, we do have an out with this, particularly if we work to expand Trans Mountain pipeline, that would give us multiple benefits or gateway and others to the West Coast-
Jackie Forrest:
But those are going west, right?
Peter Tertzakian:
Those are going west, yeah. But it allows us to tap into global markets like the Asian markets to give us the best price possible for our crudes, diversify our customer base, but also expand our potential rapid energy security sovereignty issues by, yeah, we can put it on tankers and do that route that we did in the 1970s.
Jackie Forrest:
Right. Except the Americans might control the Panama Canal, but I guess we could always go all the way around.
Peter Tertzakian:
We’ll go around the Drake Passage and-
Jackie Forrest:
As you know.
Peter Tertzakian:
Yeah. Okay.
Jackie Forrest:
By the way, we’ve been studying this for a long time. I actually found there was a government report in 1959, so it’s not just 2021 or back in the Arab embargo, that rejected building an Edmonton to Montreal pipeline. The reason in large part because overseas oil, even though it’s coming from places like Saudi Arabia, Libya, and Iraq, was deemed more plentiful and lower cost. Because that’s the issue, it’s actually just cheaper to buy the foreign oil than to do all this long way around or build the pipeline.
Peter Tertzakian:
Well, it’s like we’ve got to think of our future generations. Yeah, it’s cheaper. It’s cheaper, and that’s why we’ve never built these east to west oil pipelines. But there’s no insurance policy here. There’s no insurance policy. And by the way, central Canada does not have an SPR, strategic petroleum reserve.
Jackie Forrest:
Yeah, not like the Americans.
Peter Tertzakian:
There’s only two countries in the 31 country international energy agency that did not build a strategic petroleum reserve as a consequence of the 1970s oil price shocks. And those two countries are Canada and Norway. Now, Norway has its energy security and it has access to global markets through its coastline. Canada does not have energy security, as we’ve just discussed, or sovereignty over its pipes, nor does it have a strategic petroleum reserve. Which for the fourth largest producer of oil and gas in the world seems rather ridiculous.
Jackie Forrest:
Well, and you know what? Sometimes you got to pay a little bit more, like you say, you pay for insurance because you have that security. And that’s always been the issue in Canada when it comes to energy. We always go with the cheapest option and not the most energy secure. And why? Because we always trusted our American neighbor to never do anything that would impact the flow of that energy. And I think we’re just waking up to a new reality that we can’t trust them.
Peter Tertzakian:
Yeah. Or we gambled. I mean, let’s be clear. I mean before the United States used to be the conduit for most of our oil and gas in central Canada, there was a lot of oil that actually came in from the Middle East and other parts of the world. And so at that time, which was not that long ago I think, when did Line Nine get reversed? It was only in the last, what, half dozen years?
Jackie Forrest:
In the mid 2010s… We talked about when it was originally built, it was actually in the direction it’s flowing today, to bring crude oil from the US, Canadian oil coming through the US outside Montreal. But it wasn’t being used because that wasn’t a very economic route. So it was reversed. And then just in the mid 2010s, it was reversed, changed again. Because now there’s ample amounts of cheap crude in the inland of the US and Canada and now that was the cheaper crude. The offshore crude was deemed to be more expensive.
Peter Tertzakian:
But whatever. I mean, the 2010s were an unusual period, and it was geopolitically very quiet. And so again, we were gambling that nothing would undue levy would happen like the 1970s oil price shocks. But if it did happen, then again, we would be out of luck, certainly in central Canada because of the lack of a strategic petroleum reserve.
Jackie Forrest:
Right. Yeah, and the reliance on a pipeline that transits through the United States.
Peter Tertzakian:
And by the way, a lot of people say, “Well, we shouldn’t be doing this because it’s the end of oil. Electric vehicles are going to accelerate and we are not going to need oil anymore.” Well, this is nonsense because only a fraction of the barrel, what is it, 30% of a barrel, it’s a significant fraction. It goes to vehicular transportation. I mean, there’s all sorts of industrial inputs. I mean, oil and petroleum products are a feedstock for all sorts of industrial processes for manufacturing.
Jackie Forrest:
Yeah. And then it’s also used in heavy haulers, airplanes. Yeah, we still use a lot of oil.
Peter Tertzakian:
Airplanes and things like that. So I mean, this isn’t just about combustion and engines, it’s about securing a vital commodity that is an input into other parts of a manufacturing and sophisticated economy.
Jackie Forrest:
Right. Well, and also we don’t have the electricity infrastructure to support all electric cars today. We’re going to grow that.
Okay, well, if you don’t think I’m fired up yet, we’re going to talk about natural gas. Because this one really fires me up because we actually have a pipeline connecting western Canada on Canadian soil over top of the Great Lakes. I told you it took two years. Yes, two years to build this pipeline.
Peter Tertzakian:
The main line, yep.
Jackie Forrest:
And it had to go through the Rocky.
Peter Tertzakian:
The Canadian Shield.
Jackie Forrest:
That’s right, the Rocky Canadian Shield. And my favorite historical minister, he never was a prime minister, C.D Howe. He fought for that oil pipeline to not go through the United States. He lost that battle. He wasn’t going to lose it on this natural gas pipeline. And there was the great pipeline debate of 1956 in the House of Commons. He worked hard to get us energy security. And of course the pipeline was built shortly after.
Now this pipeline brought gas into Ontario, and then it was extended to go into Quebec. And that was good for a long time. But what happened was over time we built more pipelines into the United States and it was a better economic path to go through the United States. And this main line started not running at its full capacity. And because it was a regulated pipeline under a regulated system, if you have less through [inaudible 00:27:32], your tolls go up. If you have half as much running through the pipeline, then your tolls are kind of double. This is just simplifying it. But what happened was it became uneconomic to start moving gas through that pipeline because these pipelines that went through the US were cheaper. And the more gas that went through the US, the more expensive our pipeline got, the TC main line.
And so what we did is we actually lost a lot of market share. So if you go back to the mid 2000s, most of our gas was coming through our own pipeline and not very much was coming from the US. Today about half of the gas that’s supplied to Ontario and Quebec and consumed in Ontario and Quebec is coming through the United States. And our main line, the one that’s on our soil, is only about half used. So this is an example where as a country, we should have said, you know what? We need to find a way for this pipeline over our own soil to be competitive with the alternative. But we didn’t. Instead we lost market share in Eastern Canada, we gave the economic incentive for people to build more pipelines in from the US. And today we’re in a big bind because if the Americans were to cut off our natural gas, we wouldn’t have enough natural gas into Quebec and Ontario.
Peter Tertzakian:
Yeah. So the main line that you’re talking about, the one that [inaudible 00:28:44]-
Jackie Forrest:
The Trans Canada, or [inaudible 00:28:45]. Yeah.
Peter Tertzakian:
…have, yeah it’s not actually one pipeline, it’s actually six. From my understanding.
Jackie Forrest:
Yeah, there’s many different lines there, that’s right.
Peter Tertzakian:
That are sort of in the trench or beside each other. I don’t exactly know how it goes. It’s just sitting in the ground doing nothing and probably need some maintenance and overhaul if we’re going to get it going again.
So it’s doable. It’s doable that we can be energy secure. And by the way, those are the same pipes that were going to be repurposed for oil for energy east. And so this is the beauty of the thing is that actually, whereas you said it took two years to build this thing, I don’t think it would take that long if we had the will to actually put up the capital, again this gets back to investment, and make ourselves a lot more secure both on the oil and the gas side and consume our own products internally to contribute to our own GDP rather than see it go south and north and south and north and create this sort of dependency.
Jackie Forrest:
Yeah. Well C.D Howe would be rolling in his grave to think that the pipeline he fought for was half empty and we were relying on American gas.
Peter Tertzakian:
Yeah, so-
Jackie Forrest:
But it is an asset that we have today. And I do think there’d be the ability, because it is a fairly big, there’s a lot of pipe there, that there might be the potential to really reduce our reliance on US gas and at the same time use it for our oil problem as well.
Peter Tertzakian:
So you know that I have in my personal library a typewriter-typed copy of the original document that outlines those pipeline debates at the time.
Jackie Forrest:
Really? I’ll have to come over and read this. I’m not allowed to touch it probably.
Peter Tertzakian:
No. It’s cotton gloves. But I’ll take a photo of it, we can maybe posted it on the podcast.
Jackie Forrest:
Okay, that would be great. All right, so there. I mean, the good thing is because of the decision in the ’50s, we have options. None of them are near term, not tomorrow kind of thing. But I think there’s assets there that we can take advantage of.
And we’ll just finish off the podcast to talk about refined products. We actually import refined products from the United States into Quebec, Ontario, and British Columbia. And so we have all their vulnerabilities on refined product side too.
Peter Tertzakian:
Yeah. I know we’ve talked a lot about our vulnerabilities and even threats of being cut off from the United States, but I also want to say that there’s tremendous benefits of the continental energy pipe grid trading back and forth with the United States. We should not diminish the importance of that. In fact, we should embrace it and hopefully can even expand it. But we should also think as Canadians of how we can ensure that we have the security that we want and increase the cross Canada trade of all products, whether it’s oil, gas, and then there’s electricity too.
Jackie Forrest:
Yeah, I’m glad you said that because electricity, most people view us as being big hydro dams and that we’re sending all this electricity down to the United States. That used to be the case, but the last couple of years, our trade has actually been quite balanced and we need them as much as they need us. And I will put a link to an EIA, a little blog that explains that.
But hey, here’s another one. When we’re talking about inter-provincial trade, why don’t we trade electricity? Instead of sending it all north-south, why don’t we build this east-west big transmission line? Most of the regions of Canada are projecting that they won’t have enough electricity. And also if we want to get more renewables on, it creates a lot of resiliency to have more big transmission lines. So on these big bold plans that we’re talking about, I don’t want to forget electricity.
Peter Tertzakian:
No, we shouldn’t-
Jackie Forrest:
East-west electricity quarter.
Peter Tertzakian:
…because we want to get back to my favorite subject, which is data centers and how something’s going to have to give because the projections for data center electricity consumptions are so high. But we’ll get back to that. And we’re not going to be able to fulfill the dream of being an AI superpower without trying to figure out how to get our electricity moving across this country.
Well, Jackie, we got you all fired up. This is a time where people are getting emotional. We do need to keep calm and also look at as the big picture of what’s going on. But there’s no question that as Canadians, this is an opportunity to really take advantage of the situation and this thing becoming more Canadian in terms of our cross-country trade, increasing our exports to be more diversified. These are all very positive things that are an outcome of these tariffs. So that is the silver lining to this whole thing. Always great to chat about this stuff. Thanks.
Jackie Forrest:
Thank you. And thanks to our listeners. If you enjoyed this podcast, please rate us on the app that you listen to and tell someone else about us.
Announcer:
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