Last year, Prime Minister Carney set a goal of doubling Canada’s non-U.S. exports within a decade to decrease our reliance on the U.S. market.
That means non-U.S. exports need to grow from $225 billion to $450 billion in ten years. It’s a tall order but not impossible; it took Canada 15 years to make this kind of headway the last time.
The good news is that topline trade numbers suggest Canada has already made progress towards this goal, but half of recent gains have come from gold and other metals exports, with growth driven primarily by high prices rather than a material shift in trade patterns or volumes.
Getting the rest of the way there will require some heavy lifting, and that’s where crude oil comes in. Crude oil is Canada’s most valuable trade product. It accounts for around one-sixth of total exports and is among the most dependent on the U.S. market. Currently, 85% of crude exports flow south, compared to 72% of Canadian merchandise exports overall.
Put simply, crude oil is Canada’s single biggest diversification opportunity.
Even so, the market is set to move more oil south. In terms of volume, around 3.7 million of the 4.3 million barrels per day Canada produces moves through pipelines to the U.S. Planned pipeline expansion from Enbridge will send another 250,000 barrels south over the next couple of years, while, farther out, a new pipeline could add another 1.1 million barrels per day to the mix.
Increased export capacity to any destination is good and needed. And there are clear economic reasons for sending more oil to the U.S.: existing supply chains are already deeply integrated, and many American refineries are configured especially for heavy Canadian crude oil. From a business perspective, the U.S. market remains attractive.
But strategically, a West Coast pipeline matters even more, for both the market and Prime Minister Carney’s diversification goal.
TMX has already demonstrated this. Though locking in contracts with new trade partners takes time, around three-quarters of crude oil from the Trans Mountain pipeline was going to Asia-Pacific countries as of last year and that share is likely to grow, as new contracts come in and capacity upgrades enable greater export capacity.
Another pipeline to the West Coast would be a diversification game changer. If it were to match current patterns of TMX, our estimates suggest the dollar value of non-U.S. crude oil exports would increase from $20 billion to $50 billion and increase the share of crude oil going to non-U.S. markets from 15% to 23%. It would also achieve 13% of the Prime Minister’s diversification goal from expanded West Coast export capacity alone. Filling the remaining gap requires a growth rate of around 7% for all other sectors, slightly above the 5% rate of non-US export growth over the last 15 years.
However, none of this will happen unless the pipeline actually gets built. The MOU is a big step forward in that regard but there’s still a long way to go and many hurdles to clear.
The pipeline’s completion would bring Canada in line with the export capacity of other oil-rich countries. The United Arab Emirates proactively saw the need for export diversification back in 2012, when it built the Habshan–Fujairah pipeline to bypass the Strait of Hormuz, a contingency that has proven its value. A West Coast pipeline does not need to fundamentally transform Canada’s trade reliance overnight to be worth building. In an increasingly uncertain global trading environment, diversification is a strategic advantage.
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