Canada supplies approximately 60% of all crude oil imported by the United States. The Canadian oil sands in Alberta represent the third largest proven oil reserves on Earth. The pipeline infrastructure connects Alberta’s oil sands to American refineries. The Keystone system, the Enbridge network, the Trans Mountain system was purpose-built over decades to deliver Canadian crude to the American market.
These pipelines are not general purpose infrastructure that can be rerouted to carry oil from somewhere else. They connect specific Canadian production to specific American refineries. Replacing 60% of crude imports would require sourcing from the Middle East, from West Africa, from South America, regions with their own geopolitical complexities, shipping costs that are orders of magnitude higher than pipeline delivery, and no available infrastructure to deliver at the volumes the American refining system requires.
A single Middle Eastern supply disruption, a straight of Hormuz incident, a production cut, a diplomatic crisis, and the replacement strategy collapses.
There is a number embedded in the North American energy relationship that almost no one in Washington talks about out loud. It is not a tariff rate. It is not a pipeline capacity figure. The number is this . . . 100%.
As Turner Mason and Company cause, one of the most respected independent refinery consulting firms in the United States, documented in a margin analysis earlier this year, 100% of all crude oil imports into the American Midwest come from Canada. Not 90%, not a majority. Every single imported barrel of crude that flows into the refineries of Indiana, Illinois, Michigan, Ohio, Minnesota, and the surrounding states originates north of the 49th parallel.
And when the Trump administration imposed a 10% tariff on Canadian energy products, it did not simply add a line item to a trade ledger. It set in motion a pressure dynamic, a slow building structural collision between political ambition and industrial reality that no amount of negotiating posture has yet resolved.
To understand why, you have to understand what Western Canadian select actually is and why it became the indispensable feed stock for an entire tier of American industrial civilization.
WCS was launched in the early 2000s by a handful of large oil companies in Western Canada trying to sell more heavy barrels to Midwest refineries. At the time, producers were churning out dozens of different streams of crude oil of varying quality. And the solution was to blend around 20 different grades of conventional heavy oil, synthetic crude and diluted bummen from the oil sands at the largest oil storage hub in Canada in Hardesty, Alberta.
What emerged was a standardized commodity, dense, viscous, high in sulfur that would become the lifeblood of American refining infrastructure from Chicago to Denver.
Heavy oil such as WCS, which also has a high sulfur content, is considered a lower quality crude and will always trade at a discount to lighter grades since it requires more costly refining and processing to produce valuable end products like gasoline, diesel, and jet fuel.
There is however a profitable upside for refiners that invest in the necessary upgrades to handle heavy sour crude since heavy feed stocks are cheaper and can yield a greater range of refined products. That upside is precisely what drove the American refining industry to make some of the largest capital bets in its modern history.
Bets that now make a clean break from Canadian crude structurally impossible without massive financial pain. The most dramatic example is BP’s Whiting Refinery on the southwestern shore of Lake Michigan. Established in 1889 by Standard Oil of Indiana. Whiting is the 8th largest refinery in the United States with a capacity of more than 400,000 barrels per day.
In 2012, BP undertook a multi-billion dollar modernization project specifically designed around one strategic premise that Western Canadian Select would be the dominant feed stock of the American Midwest for generations to come. The startup of a new 102,000 barrel per day in mid November 2013 marked the last major milestone of that modernization.
The reconfigured refinery, BP stated, now had the flexibility to greatly increase heavy sour crude processing, delivering an expected incremental $1 billion of operating cash flow per year. That is not a modest infrastructure upgrade. That is a structural commitment, a declaration in steel and capital that Whiting’s commercial future was welded permanently and deliberately to the oil sands of Alberta. BP is not alone. Canadian pipelines are predominantly oriented southward toward the United States rather than toward coastal export terminals.
This makes Canadian export capacity anywhere beyond the US contingent on the pipeline capacity to coastal facilities. This state of affairs cements the US as the primary destination for Canadian oil. While some of this is a result of capacity to coastal facilities, historical decisions and geography, the United States has also specifically designed, reversed, or expanded its pipelines to encourage and enable a more efficient flow of Canadian crude to American refineries.
US refineries are uniquely positioned to handle heavy Canadian crude. The most important piece of refinery equipment for profitably refining heavy crudes like WCS is known as a coker and it transforms heavy residual fuel oils left over from the distillation process into precursors for higher value fuels like gasoline and diesel.
So, America has lots of oil but none of it works in any of their refineries! That means that America NEEDS Canadian bitumen (crude oil) or they have almost no gasoline for their cars! Digest this for a moment as this one reality point totally destroys Donald Trump’s statement! And Canada has opened up its buyer’s market potential to Asia and Asean countries and shipping our bitumen to them eats up quantities that used to go to America at a discount (another example of America screwing us for decades!)!
Now, does any of this support in any way Trump’s allegation: “America Does Not Need What Canada Has”?
That ridiculous statement by Trump is observably factually untrue and represents a symbolic third strike in answer the question set out above.
All the best
Charles
