U.S. demand for Cdn energy expected to grow

<a href=www.ctv.ca>Canadian Press

CALGARY — The United States slurps up more oil and natural gas from Canada than any other foreign country on Earth.

And with war raging in the Middle East, civil uprisings in other oil producing countries and a recent decision not to drill in a sensitive U.S. Arctic wildlife refuge in Alaska, even greater demand for Canadian energy is expected.

The daily flow of Canadian oil to the U.S. has increased dramatically over the last few years and almost double the quantity from a decade ago.

Canada is now second only to Saudi Arabia as a source of imported oil for the United States, which imported 1.8 billions per day from the Saudis in January and 1.6 million barrels per day from its northern neighbour.

When imports of natural gas are included, the importance of Canada as an energy source for the United States becomes even more apparent. Canada supplied about 94 per cent of American gas imports last year.

Yet with all the volatility in global energy markets, talk of future U.S. energy supplies rarely focus on Canada.

"I don't think Canadian oil production comes first of mind to Americans when they think of where their gas, diesel and jet product comes from," said Rick George, president of oilsands giant Suncor Energy.

But a recent U.S. media attention to the massive energy reserves in the northern Alberta oilsands -- and the synthetic crude created from its bitumen -- suggests awareness is quickly growing, he said.

"My belief is it will be positive," said George.

For the first time, a recent report by the Oil and Gas Journal on global oil reserves included 177 billion barrels of reserves from the oilsands _ a number that dwarfs estimated reserves of Canadian conventional oil.

Greg Stringham, a vice-president of the Canadian Association of Petroleum Producers, says political stability is also a key ingredient for energy trade between the U.S. and Canada.

Despite a recent disagreement between the Bush administration and the Chretien government over the handling of the Iraqi crisis, the energy-trading business has been very open and free, Stringham said.

"They're a good market, we're a good supplier. (The United States) is close and it's connected by pipeline. So all of those things add to our attractiveness as a potential producer," Stringham said.

Meanwhile, recent political problems have made several of the world's other large energy producers less-than attractive as an energy source for the United States.

Vince Lauerman, a global energy strategist with the Canadian Energy Research Institute, says a "relatively long and brutal war" in Iraq would greatly enhance demand for Canadian energy.

"The worse the war goes, and the more the Middle East boils, the higher energy security becomes as an important issue to Washington," Lauerman said.

"And with that comes benefits to Canada."

But the Middle East is not the only trouble spot for global oil production.

About 40 per cent, or 800,000 barrels per day, of Nigeria's oil production was cut off this week as major energy companies evacuated staff amid tribal fighting that has killed at least 100 people in the African country in the past two weeks.

And Venezuela is still struggling to recover from a two-month strike that failed to oust President Hugo Chavez and paralysed the South American country's lifeblood oil industry, costing about $9 billion.

Venezuela is still only producing about two-thirds of its three million barrels per day total it had before the strike and the situation remains volatile as Chavez continues to seek revenge on strike leaders.

Still, geopolitical turmoil does not necessarily mean greater demand for Canadian oil, said one U.S. energy company spokesman who asked not to be identified "There's lots of sources out there and a well-developed oil infrastructure all over the world."

But a recent political decision in Washington -- overshadowed by Iraqi war coverage -- has the potential to increase U.S. demand for Canadian energy in future.

Last week, the U.S. Senate narrowly rejected a budget provision that would have allowed oil drilling in the 77,000-square kilometre Alaska National Wildlife Refuge.

Development of the refuge had been a key part of President George W. Bush's energy plan -- despite opposition from environmentalists who fear that drilling would jeopardize the delicate ecosystem and its wildlife.

Stringham said he doesn't believe attempts to drill in the wildlife refuge will go away. "The administration down there has been quite adamant in trying to put it forward and I'm not sure if they're ready to just drop it at this point in time."

Canada has long lobbied for a U.S. ban on drilling in the wildlife refuge and has taken a more prominent role recently in promoting Canadian energy to its larger neighbour to the south.

Some Canadian oil executives, however, say further lobbying efforts are not needed to increase U.S. demand for energy.

"I think what we've got to show is steady supply, good quality product and reliable outcomes," said Suncor's George. "And then the market will come."