A new report from the Montreal Economic Institute highlights the danger of Prime Minister Mark Carney’s rhetoric about turning away from Canada’s strategic relationship with the United States, particularly when it comes to energy.
While there is a clear need for Canada to diversify its export markets, Canada’s economy, and the energy sector in particular, is deeply reliant on Canada-U.S. integration.
In 2024, for example, Canadian exports of hydrocarbons (which includes crude oil, natural gas, natural gas liquids, and refined petroleum products) to the United States totaled just under $170 billion, accounting for 22 per cent of all Canadian exports.
That number is dominated by crude oil. Canada sent just under $141 billion south of the border last year alone. And, as of right now, the U.S. is pretty much Canada’s only market for crude oil exports. The same is the case for Canadian natural gas and electricity.
So, while it’s important to talk about diversification and new markets, we cannot lose sight of the fact that a huge percentage of Canada’s GDP comes from trade with the United States, and energy trade in particular.
American gas is also crucial for Canada during the winter: the MEI notes that U.S. natural gas serves as a crucial backup for Canadian households when the weather gets particularly cold.
As the MEI notes, “in many ways, the border is an afterthought for this integrated North American energy machine, which has kept churning for a century, regardless of the political winds.”
Yes, diversification is important. Building new pipelines, such as Alberta’s proposed new pipeline to the northwest coast of B.C. to get oil to market in Asia, is crucial. The same is true for beefing up TransMountain. But when it comes to the here and now, Canada’s energy security and economic security lies in close integration with the U.S. economy.
Planning for the future is important, but Carney’s “who cares” rhetoric in explaining his recent communication with U.S. President Donald Trump is downright dangerous.
Canada’s energy productivity accounts for more than 10 per cent of the nation’s GDP. And energy trade is almost exclusively with the United States. So, treating this relationship as an afterthought is a major mistake. And that’s just energy: the U.S. is by far Canada’s number one export destination, accounting for more than 75 per cent of all exports.
Once again, it is naïve of the prime minister to suggest that a dialogue with the U.S. administration isn’t important, particularly as the CUSMA trade agreement between Canada, the United States, and Mexico is up for renegotiation next year.
Carney also needs to take care to undo a lot of the damaging legislation passed under the Trudeau government that has undermined the energy sector and weakened further Canada-U.S. energy integration. The MEI points to the 2019 Impact Assessment Act in particular as something that must be changed. The oil tanker ban on B.C.’s northwest coast, which may be lifted for a single Alberta-backed project but is still in place overall, is also harmful for further development.
As the MEI notes, “fewer routes mean more frequent bottlenecks, wider price discounts when pipelines are tight and disrupted, and encouraging monopsony power for U.S. refiners.”
How can integration further be deepened? The MEI is calling for one integrated government review for each project, firm deadlines for decisions, and clear responsibilities that don’t overlap. All of these priorities mean projects can be approved faster and shovels can be in the ground in a shorter length of time. And, in this author’s view, the renegotiation of the CUSMA must be firmly on the federal government’s radar.
Diversification is an important long-term goal. But, deeper continental integration, particularly on the energy file, must be an equally important short-term goal. It’s time for Carney to dispense with his anti-U.S. rhetoric and work with the Trump administration on deeper integration, particularly when it comes to energy.
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