Canada and the United States have enjoyed a unique relationship for many decades. This relationship goes beyond our shared border: it has been forged by similar values, common interests, deep often personal connections and powerful, multi-layered economic ties. The relationship between Canada and the U.S. is arguably one of the most stable and successful relationships between any two countries around the world. Together, we form the world’s largest trading partnership of goods and services. Central to that trade is energy, and we are each other’s largest energy trading partner, with $106 billion in crude oil, $16.4 billion in natural gas, $25 billion in refined petroleum products and $3.4 billion in electricity being traded between Canada and the United States in 2018.
Recently, I had the opportunity to speak with the Canadian Ambassador to the United States, David MacNaughton, to get his thoughts on the Canada-U.S. energy relationship. Here are some highlights from our conversation.
CGA: You have some challenging files as our Ambassador to the United States. Can you discuss where the energy file fits within your priority list?
Ambassador MacNaughton: There’s no secret that for the last few years, I spent a significant amount of my time helping re-negotiate the NAFTA agreement, and energy was part of the discussion. One of the main points we have emphasized in these discussions with U.S. officials is that Canada is a secure partner. Not just a secure partner in defense and intelligence but in energy: our relationships in the energy sector and with energy trade have made the U.S. more secure from a supply perspective, and from an economic perspective. In a world where key global energy suppliers are countries with very challenging political and economic environments, it is clear that Canada is a particularly valuable partner. Canada and the United States’ two-way energy trade was worth $162 billion in 2018, and there are opportunities to grow it. In fact, I recently had the opportunity to speak to a number of U.S. officials about this and how we can work to get more of Canada’s resources in the United States to help offset negative consequences from issues arising in other supply options.
CGA: Do you think there is an appreciation from government officials in Canada and the U.S. of just how much the energy sector operates as a continental one, not separately in either country?
Ambassador MacNaughton: There is an appreciation for this within the sector itself but I don’t think it is broadly understood by all politicians or by the public. This is partly because our systems are so reliable. We see very few issues with resources going back and forth between countries and so there is little thought around this for those not directly involved in the sector. I think raising the awareness on this matter is really important and more should be done. I remember just before the last U.S. election talking to a Senator who said that if the Republicans were elected, they would help support the Keystone pipeline project but that they would be requesting a piece of the action. I said, that’s fine, as long as we get a piece of the action from all the pipelines that move south to north. He was clearly surprised that there were pipelines moving south to north. As I have said, we have not been clear enough when talking about the continental resource development opportunity to outline the key benefits it offers Canada, the U.S., and Mexico as well.
CGA: The Trudeau Government has staked its claim on an aggressive environmental agenda, including a commitment to meeting the Paris Accord emission reduction targets. The Trump Administration has backed out of those targets. How does this affect your work in respect to the energy file?
Ambassador MacNaughton: It is clear that the two governments have different approaches on the emission control question. Although the U.S. federal government has backed out of the Paris Accord, nearly 50 per cent of state governments within the United States have indicated their support for Paris targets. This tells me that the U.S. federal government’s withdrawal from the Paris Accord is not the view of all Americans. I don’t believe we should be changing direction every time a new administration comes in; we need to look at the overall momentum and even if you have an administration that isn’t fully supportive of the Paris target, we should remain on course. We can’t lose sight of the bigger picture regardless of the approach taken by one administration or the next. I was recently at CERAweek where this topic was brought up by some of the big U.S. oil and gas producers. Their view is that the U.S. should not roll back its regulation, but should in fact look for innovative ways to achieve further reductions. I think the industry has a good long-term view of things and I think we can’t be buffeted one way or the other by the approach of one federal administration or the next.
CGA: You noted industry’s emphasis on innovation in discussions at CERAweek. Innovation is a key file for the Trudeau Government, and one where there is arguably more alignment with the Trump Administration. Innovation is a significant priority for us in the gas industry. Is there an opportunity for us to work together (industry and government) in our advocacy for Canadian interests here, as a means to lower emissions irrespective of any particular international commitments? What suggestions would you have for us?
Ambassador MacNaughton: There is no question that the industry has done a fantastic job of investing in innovation. I think it is an area that we need to keep on developing by providing funding and support to help accelerate clean technologies. We also need to make sure that all levels – including federal and provincial/state governments, and the private sector – continue to work together to help bring innovative technologies to market. I believe one of the reasons for our success on the NAFTA re-negotiation was the phenomenal partnership between the federal and provincial governments and the private sector on both sides of the border. When we work together, we have the potential to make real change. The innovation file in the energy sector is definitely an area where all governments across the border can work with industry to advance collaboration and help address environmental and economic objectives.
CGA: You have noted many times that in spite of differences, the links between our countries are strong, and need to be built upon. One of the strongest of these is infrastructure, and in terms of energy infrastructure, nothing moves more energy back and forth than natural gas pipelines. What advice have you for our readers in the Canadian industry to build on this link?Ambassador MacNaughton: Getting energy infrastructure built is one of the bigger challenges we currently face on both sides of the border. I believe there needs to be a serious conversation between all levels of government and the public sector to find a better way to move forward on energy projects. Your readers are probably aware of the barriers and challenges of building infrastructure in Canada but it is also happening in the United States. Many of the proposed pipeline projects across the U.S. are currently being challenged legally, environmentally as well as by indigenous groups. This is really a dilemma for the entire industry. What we need to do is spend some time, both the public sector and the private sector, to look at best practices and engage with opposition groups in a meaningful way in order to come to an agreement to move ahead with necessary projects. The recently announced LNG Canada project in British Columbia is a good example of the public and private engagement I just mentioned, and hopefully, we can move forward with other projects such as this one not just for the sake of getting our resources flowing from coast to coast, but also to be able to send our energy resources to international markets.
CGA: Stepping back and thinking internationally, North America is incredibly blessed with natural gas resources and has an opportunity to keep energy affordable and clean on the continent, while delivering those benefits to the world. The global benefit could be environmental, economic and social. We in the industry are committed to pursuing this. What advice do you have for us, and how can we work with governments on this?Ambassador MacNaughton: I couldn’t agree more. Having secure forms of energy is an enormous building block for economic development and getting people out of poverty in many regions of the world. In thinking about this, I believe there is an opportunity to work with large institutions like the World Bank and other aid programs to find ways to provide cleaner environmental solutions and more reliable energy systems in developing countries. Governments and the industry should be working together to find international opportunities where we can take private sector expertise, our energy resources, and concessional financing or aid programs to build resilient, clean energy systems around the world. Canada has a huge opportunity in that regard but again we need to have the public and the private sector and the international organizations working together.
CGA: Any final thoughts?
Ambassador MacNaughton: In working in this role for the past three years, I have noticed there is so much about our North American relationship, in particular the Canada-U.S. relationship that has worked so well. The opportunity to work together, particularly with the energy sector, is huge and it will benefit both our countries. It doesn’t have to be a zero-sum game. From my experience, American officials, from the Department of Energy to the State Department and even the White House, have been very open to discussions of energy cooperation. That is because they understand that we manage the electric grid together, we have oil and gas pipelines going back and forth, and we have opportunities in terms of supporting LNG development. The future is extremely bright for our energy industry across Canada and the United States but we need to continue to collaborate as a whole, working on greater private and public cooperation make it all happen. There is always an open door here for your industry and I welcome ideas and look forward to working with you in the future.