Fading Investment Opportunities in Canada’s Oil and Gas Industry with Excessive Dependence on US Refineries and Excessive Regulation: US Shale Oil and Burgeoning US Energy Independence

 

Together the US and Canada produce more oil than anywhere else on Earth, according to SP Global. 

President Trump, who took office on January 20, 2025, for his second term, had planned to charge a 25% tariff on Mexican crude and a 10% levy on Canadian crude beginning in March, which has now been removed. Nonetheless, the threat of tariffs exposes Canada’s vulnerability.  Canada, the biggest oil supplier to the U.S., exports some 4 million barrels per day (bpd) of crude into the U.S., 70% of which is processed by Mid-Continent refiners. A barrel of Western Canada Select (WCS) heavy crude in Alberta has been reported to trade at approximately $13.00 below Western Texas Intermediate (WTI), as compared with Mars sour, a US medium sour crude produced along the US Gulf of Mexico (America), at approximately $2.00 above WTI.

The US continues to be the largest source of Canada’s imported crude oil. In 2023, 72.4% of Canada’s oil imports originated from the US, compared to 72.0% in 2022 and 65.7% in 2021. Most of the crude oil imported from the US comes from the Gulf Coast at 68.8% in 2023, followed by the Midwest regions at 30.1% Crude Oil Exports by Destination dataset,  US Energy Administration.

As per https://www.canadianenergycentre.ca/explainer-why-canadian-oil-is-so-important-to-the-united-states/ many refineries in the US are specifically designed to process heavy oil, primarily in the US Midwest and U.S. Gulf Coast. Overall, there are about 130 operable oil refineries in the US, according to the American Fuel and Petrochemical Manufacturers. The Alberta Petroleum Marketing Commission estimates that 25 US  refineries consistently use oil from Alberta.

Since 2010, virtually 100 per cent of oil imports to the US Midwest have come from Canada, according to the EIA. More than 70% of U.S. processing capacity is configured to run heavier grades, which are cheaper to import from Canada and Mexico.

Many US Midwest inland refineries can switch to refining light crude from shale (Shale Oil), in abundance in the US. The “Shale Revolution” refers to the combination of hydraulic fracturing and horizontal drilling that enabled the United States to significantly increase its production of oil and natural gas, which now account for 36% of total U.S. crude oil production. This new production capacity has reduced the United States’ dependence on oil imports from overseas https://www.strausscenter.org/energy-and-security-project/the-u-s-shale-revolution/, and has consequences on the overall need for heavy Canadian crude. 

Canada and the province of Alberta specifically, has been hampered historically and politically with respect to pipeline development, now even more so with the impending requirements of the Impact Assessment Act, federal legislation for assessing and regulating major resource and infrastructure developments that were initially found to be largely unconstitutional in reference to the Supreme Court of Canada released in late 2023; amendments were recently introduced. 

In face of mounting US pressures on the Canadian economy, the province of Ontario recently tabled legislation, Bill 5, named Protect Ontario by Unleashing our Economy Act, 2025. Bill 5 aims to streamline and accelerate the approval processes for major mining and infrastructure projects in Ontario while also introducing new powers to protect the “strategic national mineral supply chain”. Time will tell as to the cooperation between provincial and federal governments in Canada. In the meantime, the US marches forward in an aggressive manner to become more if not wholly self-sufficient with respect to energy under the current Republican government. In the same breath when considering the benefits of Shale Oil, the US has discovered the potential for extraction of large quantities of lithium in fracking wastewaters, an element so important for use in batteries for electric vehicles https://www.foxnews.com/politics/major-lithium-discovery-fracking-wastewater-leaves-left-facing-ev-irony.  

Canada needs to determine its course in oil, gas and energy overall as well as extraction rare earth minerals before it is too late and its resources will no longer be a major export to the US or elsewhere. Suggestions in Canada that the country can be a global clean energy leader makes for good political commentary but needs to be backed up with real action and not more dithering. 

Nicholas J. Cartel

www.accendexe.com

The above-referenced opinion does not constitute legal advice or financial advice but are views of the author.