[R-G] Canada's role missed in U.S. energy debate: Yergin

[Anthony Fenton]

Canada's role missed in U.S. energy debate: Yergin
Sun Sep 21, 2008 4:33pm EDT
http://www.reuters.com/article/vcCandidateFeed7/idUSN2150593120080921?sp=true

By Jeffrey Jones

BANFF, Alberta (Reuters) - The way Daniel Yergin sees it, the high- 
stakes debate over energy security in the U.S. presidential campaign  
has ignored one of the most critical parts of the United States' oil  
supply equation: Canada.

The United States' neighbor to the north has quietly become its  
largest foreign oil and gas supplier, and that has actually improved  
energy security in the United States, said Yergin, energy and  
geopolitical analyst, Pulitzer Prize-winning author and chairman of  
Cambridge Energy Research Associates.

Meanwhile, Canada's oil industry is struggling at home to keep  
boosting production of the country's vast oil sands while facing major  
new environmental and cost hurdles, Yergin said.

"People debate oil imports, but what they don't know is 22 percent of  
oil imports come from Canada, that 13 percent of our natural gas comes  
from Canada. Imports of energy from Canada need to be seen in the  
larger context of the trade and investment network that ties the two  
countries together," he said in an interview in the mountain resort of  
Banff, Alberta.

"This shows interdependence at work."

Democratic presidential hopeful Sen. Barack Obama and Republican  
candidate Sen. John McCain often preach the need to break the U.S.  
dependence on foreign oil, evoking images of governments hostile to  
the United States, like those in Iran and Venezuela, profiting from  
American economic woes.

But with oil, gas and coal likely to remain the biggest energy sources  
for at least another two decades, the United States will require  
foreign supply, said Yergin, best known for his book on oil-industry  
history: "The Prize: the Epic Quest for Oil, Money and Power."

"Energy independence is a very powerful symbol because it seems to  
carry the U.S. back to where it was in the 1960s, but the reality is  
energy is part of a larger network of trade and investment, and it  
seems to me that the real question that needs to be addressed is  
energy security," he said.

ENERGY BORDER BLURRED

Canada's oil sands represent the largest deposits of crude outside the  
Middle East. With more than $100 billion worth of projects planned and  
under way, the country is one of just a handful in the Americas  
expected to boost output in a big way.

In recent years, the border between the United States and Canada has  
become increasingly blurred in energy, with U.S. companies, like Exxon  
Mobil Corp (XOM.N: Quote, Profile, Research, Stock Buzz) and Devon  
Energy Corp (DVN.N: Quote, Profile, Research, Stock Buzz), investing  
billions of dollars in Alberta oil sands projects, and Canadian  
companies, such as EnCana Corp (ECA.TO: Quote, Profile, Research,  
Stock Buzz) and Husky Energy Inc (HSE.TO: Quote, Profile, Research,  
Stock Buzz), buying into U.S. refineries.

Pipeline capacity keeps expanding, pushing Canadian crude now as far  
south as the U.S. Gulf Coast, where supplies of Venezuelan and Mexican  
crude have waned.

Far from being worrisome in the United States, the meshing of energy  
economies is largely unknown by the general public, and has scarcely  
entered the election campaign, Yergin said.

The timeline of "The Prize" ends during the Persian Gulf War in 1991.  
Yergin has updated the sweeping history in an edition to be published  
in December that includes the rise of Canada as a major supplier as  
part of a "fact-based roadmap" explaining the current U.S. energy  
situation, he said.

"It's to say we need a more realistic appraisal of the U.S.  
relationship to the world energy markets, and, in fact, what is the  
key role of Canada," he said.

A big part of Canada's rise has been due to the development of  
technology that has made the oil sands a realistic commercial prospect  
after decades of experiment, he said.

But the industry now faces a combination of massive cost pressures,  
due to tight labor supplies and rising materials costs, as well as a  
full-court press by environmental groups seeking to hammer home the  
impacts on air, water, land and communities strained by the investment  
boom.

Warnings of Canada's "dirty oil" have been heard in Washington,  
forcing the Alberta government and the energy sector to mount their  
own public relations campaigns.

"This is an important question because it's an environmental question,  
it's also an energy security question and it could be a fundamental  
question in Canada-U.S. relations," he said. "It needs to be handled  
properly or it could have a very disruptive impact on one of the  
United States' most critical relationships."

(Editing by Gary Hill)