Members of the committee, thank you for taking the time today to discuss the critical topic of Canada's energy export opportunities at the most energy insecure moment, globally, in a generation.
My name is Rory Johnston, and I'm an oil market analyst. My comments today and the expertise I hope to share with the committee relate to the position of Canada within the global oil market and the specific structure of Canada's current oil trade.
Canada is a global energy superpower. We are a top five producer, exporter and reserve holder of oil, but unlike other global energy superpowers, like the United States, Saudi Arabia and Russia, virtually all of our oil exports go to a single market—the United States. Whereas, other energy superpowers sell the bulk of their product to open, and thus optional, seaborne markets, the vast majority of Canada's energy exports go to market via fixed pipelines. In other words, our products are currently locked into specific geographic markets, most notably the U.S. Midwest.
Canada's dependence on pipelines has often resulted in existential crises for the oil and gas industry. When western Canada's production outstrips available pipeline capacity, it can trigger years of wider differentials, in this case the discounts, for Canada's primary heavy crude export blend, Western Canadian Select, or WCS, relative to U.S. benchmark WTI. This discount normally sits between $10 and $15 a barrel in Hardisty, Alberta, but indicatively hit an all-time high of roughly $50 a barrel in late 2018, which prompted the Alberta government to temporarily curtail provincial production in order to reduce competition for increasingly scarce egress.
The availability of ample and reliable egress is the single most important factor underpinning the competitive position and continued success of western Canada's oil and gas industry. Without sufficient egress, we can expect ever-larger discounts borne by Canadian barrels or permanent curtailment of Canada's largest export industry. It's critical to emphasize that the devaluation of Canadian oil exports caused by differential blowouts doesn't apply only to barrels stranded in the basin, but to virtually every barrel produced in western Canada. As such, differential blowouts have an outsized impact on provincial government royalties, investment intentions and ultimately employment in the sector.
There are multiple potential paths of Canadian pipeline expansion. At present, we have the MOU for the west coast oil pipeline, championed by the Alberta government, expansions to the Trans Mountain pipeline system and Enbridge Mainline system, and the most recently floated Bridger expansion pipeline in the United States that would connect to legacy Keystone XL pipeline segments on the Canadian side of the border. Expansions like those proposed on Trans Mountain and Mainline are poised to expand egress capacity by 300,000 to 400,000 barrels a day each, with a cost measured in single-digit billions of dollars. The greenfield pipelines are notably more expensive and complex.
The path of least economic resistance will likely further entrench dependence on the U.S. market. If the prioritization of these expansion opportunities is left entirely to the oil and gas industry alone, there is great potential to favour options that maximize netbacks—typically the capacity with the lowest per-barrel cost—over options that maximize strategic value.
However, the U.S. market is less and less risk-free. For most of the history of Canadian oil industry, the U.S. market seemed like an effective risk-free bet. Our closest ally also happens to be the world's largest oil importer. The U.S. had a growing demand for Canada's heavy sour barrels, and as a result, Canada now accounts for roughly two-thirds of all U.S. crude oil imports.
Now we face the rise of anti-pipeline politics with the Obama and Biden administrations, and more recently and more concerningly, the Trump administration's trade war on Canada and previously unthinkable threats to impose tariffs on Canadian oil exports. U.S. refineries hold an effective monopsony on Canadian crude imports. Economic research has shown that, by and large, American businesses and consumers bore the lion's share of tariff incidents across most sectors.
Most firms can pivot the export of goods elsewhere, if prices are better. Unfortunately for Canada’s pipeline-dependent oil industry, U.S. refiners can push more of that tariff incidence upstream into Canadian crude pricing. Indeed, this is exactly what happened through the first few months of 2025, right until the White House exempted all USMCA-compliant goods, including oil. There's no separating ourselves from the U.S. market. That ship has sailed. It's largely in Canada's interest to continue supplying U.S. refineries, but Canadian exporters have already largely satiated U.S. refinery demand for Canadian heavy crude. A growing volume of Canadian crude is already being re-exported out of the U.S. gulf coast.
The Trans Mountain expansion project helped crack the door open to new markets. Last year, China overtook the U.S. west coast as the largest buyer of those barrels. Still, the largest tankers cannot load from the Trans Mountain pipeline. This means that the only functional way to service the Indian market, for example, has been to ship on those large VLCC tankers out of the U.S. gulf coast.
Canada can prioritize its own energy security. As the largest net petroleum exporter in the OECD and the western alliance, Canada needs to prioritize its own energy security in terms of both supply and demand. Energy security of supply can only come from a diversity of suppliers. Energy security of demand can only come from a diversity of export markets. If the U.S. ever wants to tariff our exports again, it would be advantageous for Canada to have export options. This highlights the strategic value of more west coast export pipeline capacity that terminates in a deepwater port and provides full service access to global markets. This capacity will likely require public capital to be realized.
Canada is a global energy superpower. It's time we started thinking and acting like one.