With the future of free trade between Canada and the United States unclear at best, a look to the past could provide hints at where critical exports of energy fit into a deal in the future.
Previous versions of the free trade agreements between the two countries used to include a section called “energy proportionality,” which restricted Canada from reducing the percentage of its total oil, gas or similar exports to the United States — even in the event of an emergency.
“What we’d send to them on a good day, we’d also have to send to them on a bad day,” explained Gitane De Silva, former senior representative for Alberta to the United States and former CEO of the Canada Energy Regulator.
That old treaty language could have functionally stopped Canada from switching exports to a country other than the United States or from halting exports to increase domestic supply.
But when CUSMA replaced NAFTA in 2020, there was no energy proportionality section.
Experts and academics point out that this is because the older energy restrictions were shaped by concerns coming out of the late 1970s and 1980s.
“Back under the original agreement, the spectre of the Arab oil embargo loomed large in the U.S.,” said Carlo Dade, director of international policy at the University of Calgary’s School of Public Policy, and oil supply crunches weren’t that far in the past.
Canada had previously imposed, then lifted, controls on its own oil supply through the defunct National Energy Program.
1980 Lougheed reacts the National Energy Program
Fast forward to the 21st century.
Over decades, the United States ramped up energy production within its own borders. Technological shifts, including shale production and fracking, helped eliminate American concerns over whether others would sell to them if global supplies ran into problems.
In addition, Canadian energy producers continued to sell to customers in the United States. Export systems in this country, such as pipelines, now primarily supply the United States and, on top of that, aren’t really movable.
“That [energy proportionality] chapter wasn’t necessarily required because the infrastructure essentially replaced it,” De Silva said.
World energy supplies again in flux
As the war between Iran, the United States and Israel has highlighted, global oil supplies are not always secured for every nation that wants to import them. So, fears of less supply combined with higher prices could make a guarantee of access to a huge oil supply enticing.
Should Canada enter CUSMA renegotiations with a promise of American access to oil and gas supplies north of the border, that could be seen as a bargaining chip by some.
But it may not be a bargaining chip the U.S. cares about, according to a former trade diplomat and litigator.
Rambod Behboodi points out that the United States now produces much more energy than it did when the first free trade agreement was being negotiated in the Brian Mulroney era, so it may not be as worried as the rest of the world.
Plus, if Canada proposed bringing back a clause that guaranteed it would sell to the United States, the Americans may find themselves forced to sell to Canada, said Behboodi, senior counsel at Borden Ladner Gervais LLP.
“The U.S. as a potential exporter of energy is suddenly caught by those proportionality requirements,” he said.
Be careful if you ‘poke the bear’
The reality of negotiating with the United States seems to have one consistent theme.
Inconsistency, say both energy and trade experts. So looking ahead is difficult, at best.
“The biggest challenge we have is getting the United States to abide by the agreements that it has already signed,” said Behboodi.
While many players in the American economy need Canada’s energy, many say Canadian negotiators should probably avoid being the first to bring that up as a bargaining chip.
“You need to be careful how you poke the bear,” said Gitane De Silva. She said the Trump administration will need to “feel like they’ve won.”
For Carlo Dade, negotiating with the United States will be fraught at best. Rather than energy being used as a bargaining chip, he says CUSMA renewals will be about mitigating future losses across all sectors.
“You’re not buying a car from a reputable car dealership or even an unreputable dealership. You’re buying it from the mob,” said Dade.
He pointed out, as did Gitane De Silva, that Canadian energy exports already go to the United States.
“The pipelines are built. The trade is happening. Let sleeping dogs lie,” said Dade.
Canada may increase capacity to the U.S. anyway
For an energy-producing province like Alberta, shifting exports away from the United States may not be a priority either.
Premier Danielle Smith has said she wants more pipeline capacity built to the United States, in addition to pipelines that would allow export to Asia.
“If we can get our product down to the Gulf Coast, whether it’s Louisiana for gas or whether it is Texas for oil, then the Americans can either use it for their purposes if they need it or it can be re-exported abroad,” said Smith, speaking on Corus Radio’s Your Province, Your Premier on March 28.
When asked if Canada would look to discuss energy proportionality with the United States, the office of the federal energy minister wrote that there’s a focus to “provide our energy to all our allies.”
“Canada has many strong cards – especially in the energy and natural resource sector – and we look forward to negotiating the best possible deal during the upcoming CUSMA review,” wrote Carolyn Svonkin, spokesperson for Tim Hodgson, the federal minister of energy and natural resources.
Is it a moot point?
While under the current treaty, we don’t have to sell to the United States if someone else wants the oil and gas, there may not be an upside to re-restricting Canada at the bargaining table.
Behboodi said it would go beyond expressing “energy solidarity” in North America.
“It would propose to override our rights,” he said. “I’m not quite sure that any government would negotiate that.”
As well, there’s nowhere else for much of Canada’s oil to go until — and if — it can get to oil tankers for shipment overseas.
“If you look at the proportion of Canadian oil that shipped to the U.S. today … we know that more than 90 per cent of our exports go there,” said De Silva.
Whether energy proportionality ends up a useful bargaining chip in an U.S. treaty ultimately may depend on whether Canada builds infrastructure to sell anywhere else.
“If we did choose to build more pipelines, if we are able to build more pipelines, then that question becomes a real one.”
