Why Americans Should Love Canadian Oil

As Alberta’s Premier makes her rounds in the United States this week to sell the oil sands, she might want to capitalize on the current American preoccupation with gasoline prices, which have soared more than 20 percent in parts of the country since mid-December.

The good news that Alison Redford could highlight is that Canadian oil exports have helped keep gas prices dramatically lower in several U.S. states.

Since there’s no better way to Americans’ hearts than through their pocketbooks, showing them how Canadian crude eases their pain at the pump would also showcase the more important news flash – we get a lot of oil from Canada.

The U.S. agency responsible for compiling energy data, the U.S. Energy Information Administration, recently documented this favorable Canadian energy effect. In a February report, it noted that the price of regular gas had actually fallen 32 cents a gallon in the Rocky Mountain states from late November to the end of January.

In the rest of the country, the price jumped 13 cents during the same period, and has climbed sharply since. If you drive on the West Coast, the EIA said Monday, the average price of regular has gone up 70 cents in the past 10 weeks.

Why the difference? Blame Canada.

The five states of the EIA’s Rocky Mountain region – Colorado, Wyoming, Montana, Idaho and Utah – get two-thirds of the oil they turn into gas from their own wells, or from those of adjoining U.S. states. The other third comes from Canada’s oil sands.

This oil is extremely cheap compared with oil in the rest of the U.S. or the rest of the world, where prices have spiked recently due to riots in Nigeria and tensions with Iran. Refinery repairs and local taxes also play a role. But the real culprit is supply and demand.

Canadian oil exports to the U.S. have doubled in the past 20 years as oil sands production ramped up and Canada quietly became our largest foreign oil supplier. Most of the new supply flows from Alberta to the U.S. midsection, where it joins traditional streams from the oil patch of Texas and new unconventional domestic sources such as North Dakota’s oil shale.

This oil wave has grown so quickly that it has outstripped local demand. And since insufficient pipelines exist to move oil out of the U.S. heartland to the Gulf Coast and world markets, both Canadian crude and locally produced oil sell at a sharp discount, recently more than 20 percent less than oil priced in Europe or the Middle East.

This helps explain the big difference in gas prices in the Rocky Mountain states and, say, the U.S. East Coast, where Alberta’s Premier is headed next.

Rocky Mountain refiners paid, on average, $91.54 a barrel for their local and Canadian oil in November. On the East Coast, which receives far less Canadian crude, they paid $111.98, which is 22 percent more.

The difference is quickly felt at the pump. The EIA reported Monday that East Coast drivers are paying an average of $3.73 for a gallon of regular, up 14 percent since mid-December. In the Rocky Mountains, it was $3.19, up less than 2 percent.

This clearly is a plus if you’re trying to convince Americans that the oil sands aren’t all bad. Ms. Redford should certainly mention this when she gets to New York.

She might be careful, however, about mentioning the Keystone XL pipeline in the next breath. If Keystone is built, that landlocked Mesoamerican crude would finally have an outlet to the U.S. Gulf Coast. The glut would drain away, and the price of Canadian and U.S. domestic crude would rise accordingly.

But, by then, at least some Americans would finally have learned where they’re getting more and more of their oil.

This article was originally published in The Toronto Globe and Mail.