Mr. Trump, NAFTA 2.0 Must Promote Natural Gas Trade With Canada

Any new U.S. trade deal with Canada must build upon the great energy partnership that we already have.

Most Americans probably don't realize that although U.S. natural gas production has surged almost 40% since our shale revolution took flight in 2008, we still import a lot of gas from Canada. Today, we get about 8.1 Bcf/d of piped gas from our northern neighbor. The main importing points of entry are in the West and Midwest: Idaho (26%), Montana (18%), North Dakota (17%), Minnesota (16%), and Washington (14%) taking in over 90% of all volumes last year. These areas sit remote from our shale sites, namely Texas and Appalachia that produce over 60% of U.S. gas. Taking in low cost gas from Canada makes economic sense and is obviously no threat to U.S. energy security.

In fact, Canada is our largest energy partner, with energy constituting 20% of all trade that we get from Canada. We are a net energy importer from Canada. In recent years, the value of U.S. energy imports from Canada have been in the $50 to $60 billion range, well above the $15 billion value of U.S. energy exports to Canada. Canada supplies over 10% of our gas and 20% of the crude oil that we use.

But, let me focus on natural gas in particular, the most vital source of new energy supply here and around the world. Our total gas imports from Canada are valued at about $6 billion. Producing 17 Bcf/d (which is more than Pennsylvania does), Canada is fourth globally in total gas production, above China and even LNG leader Qatar, behind only the U.S., Russia, and Iran.

As for U.S. gas to Canada, our exports average over 2 Bcf/d, mainly going from Michigan and New York into the eastern provinces. Taking Appalachian gas from the Marcellus and Utica shale plays, the Rover (3.25 Bcf/d capacity) and Nexus (1.5 Bcf/d capacity) pipelines will be shipping more gas up through eastern Michigan into Canada's Dawn Hub in Ontario.

It's looking forward where the importance of Canada's energy becomes crystal clear. Canada has nearly unlimited oil and gas deposits, and importing nations around the world are seeking out the country to supply. That's mostly because Canada has a slow growing population and a mature energy demand market so incremental domestic needs are quite low. The expanding capacity to export is perhaps Canada's greatest energy advantage.

Moreover, future domestic gas needs won't be very high. Canada is blessed with immense hydropower resources, and water supplies over 60% of the country's electricity. Gas is only 10% of power, well below the OECD average of nearly 30%. Canada's focus on natural gas will be based on exporting it and using gas in the oil sands development process, the latter accounting for a third of the country's total gas usage.

For liquefied natural gas (LNG) exports, it's been a rough start, after more than a dozen projects have failed to materialize. But now, the C$40 billion LNG Canada project is poised to move ahead on Canada's West Coast. As Canada enters the LNG space, China, India, and the other developing giants are calling. These non-OECD nations will be responsible for 70% of all new gas demand globally.

Canada is also 5,000 nautical miles closer to Asia than the U.S. Gulf Coast, significantly lowering transport costs. With a potential gas resource of nearly 1,800 trillion cubic feet, these nations know that well-equipped Canada is a reliable trade partner, a democratic nation with strong investment protection, and favors a free-market that makes trade highly predictable and transparent. Another 14 projects have now been proposed for Canada’s West Coast, where provinces Alberta and BC produce almost all of Canada's gas. And anti-trade rhetoric here in the U.S. will incentivize the Canadian energy industry to seek out Asian buyers even more.

Ultimately, the  Canada-U.S. gas trade is a prime example of why we must continue to collaborate with our North American allies. For over a decade now, I've been calling for a North American Energy Alliance, centered on more connections with Canada and Mexico that are the cornerstone of our continent's energy and national security. It's based on more gas and oil pipelines but also on more electricity transmission links, liberalizing trade and further integrating our markets across borders.

With Russia joining forces with China, and Iran joining forces with India, a cooperative North American energy sector is the ultimate no brainer. Just think about for oil alone, still the world's most vital source of energy with no significant substitute whatsoever: "Canada is North America's Great Oil Security Blanket."