The US/Canada Relationship ices over…

or… what to do during the hardest days between two longtime friends.

Imagine for a moment, a frigid day across Canada in mid-January, 2010. The Olympics are just around the corner, the athletes are already arriving, and the whole country is revving up with excitement.

A cold snap comes… nothing new for Canadians… it reaches -25C in Calgary, -40C in Regina and Winnipeg. It spreads down into Central Canada, Thunder Bay, then Sudbury then Toronto and the meat of the country freezes as temperatures hit -25 for over a week.

On the Westcoast though, it’s fine… a little cool… perfect skiing weather… a good omen for the Olympics?

The same coldsnap (much like the heatwave this summer) reaches down into the US… millions of Americans from New York to St. Louis are dealing with temperatures below 10F.
As people rev up their heatpumps and furnaces, natural gas and fuel-oil prices start to rise. Natural Gas has already been hovering around historical highs (Oct 2005) of $15 per mcf. There has been talk on the news about declines in Natural Gas production, especially in Canada, where our Natural Gas Output as fallen to 5 trillion cf per year from 6.5. But there are trillions of cubic feet of Natural Gas stored away just-in-case, so it’s OK, and LNG imports as well.

Prices move up to $20 per mcf, then quickly hit $30. The cold snap is causing unprecedented demand. In Canada, natural gas furnaces are working overtime, Natural gas fired electric plants are also going full steam ahead trying to ensure the lights and heat stay on for millions of Canadians.

Then, mid-way through the coldsnap, January 18, 2010, the CBC reports that Canada and the US have tapped their mutual emergency energy reserves. Natural Gas prices spike to $40. Many Canadians in rural and urban Canada, simply can’t pay the bills.

A Minority Conservative government in Ottawa declares two-days, alternated across Canada, “of rest” to allow people to stay home, conserve power, stay off the roads and businesses and commercial interests to shut down.

As the cold snap reaches it’s 2nd week, a report appears in the Calgary Sun that gas exports are going as fast to the United States as possible. The NAFTA agreement mandates that, because the US received 50% of Canadas natural gas exports in 2009, then the US is entitled to 50% again in 2010. That works out to about 15 million cubic feet of Natural Gas a day.

Even with the temporary conservation measures, Canada’s demand for Natural Gas has reached 17 million cubic feet… gas can’t be extracted from the reserves fast enough.

The only way to bring more gas online is to divert gas destined for US markets into Canadian homes and businesses. It’s also needed to keep Tar Sands production going which itself is working full out to keep up with the increased demand for oil.

At the same time, the US needs that gas just as badly.

The Canadian government is confronted with an impossible dilemma, break NAFTA and temporarily limit gas exports to the United States… likely causing power outages in New York during 10F weather… or ask Canadians to turn down their thermostats and put on an extra sweater at a time when unprecedented numbers of homeless people and seniors are freezing in their shelters and apartments in Toronto, Montreal, and Windsor.

On the Eve of the 2010 Olympics, 100s of Canadians and Americans are freezing to death. The United States is importing LNG as fast as it can, but simply can’t keep up. US and Canadian officials are furiously negotiating a solution but nothing seems to be happening. THe price of natural gas finally peaks at $42 mcf.

Canadian public opinion swings massively for keeping Natural Gas in Canada for Canadians first. Recognizing their own political future is at stake, Governments start to heed the call, and, like with Softwood Lumber, the provinces start to line up behind Ottawa to present a united and firm stance in NAFTA negotiations. Only this time, the need is far more immediate, the problem must be fixed in days and weeks, not months and years.

American news media start to paint a more confrontational picture and Fox News is the first to mention the words “securing adequate supply”. American Public opinion is firmly against any confrontation, but as people continue to suffer, both physically and economically, serious questions are asked, protests start to break out on both sides of the border.

Eventually, after 14 days of record cold, the snap ends… pressures ease off of the natural gas supply and things return to normal.

But now, the cat is out of the bag. It is clear that North Americas declining natural gas stocks are no longer adequate in times of extreme need. The political and economic turmoil partly overshadows the 2010 Olympics and continues for months.

Eventually, the minority government in Ottawa is defeated on an obscure procedural call… the Opposition smells blood, and its name is NAFTA. That issue and it’s effect on our relationship with the United States is the #1 plank in everyones platform.


Does the above scenario sound doomsday?

It shouldn’t…

If you live in the NorthEast US or Central Canada…. how many coldsnaps like this do you remember over the past 10 or 20 years? 3? 5? 10?

This post was inspired by This Article at energy bulletin today which gives a massive amount of links detailing different facets that this “scenario” touches on.

The fact is that, as demand for Natural Gas increases for things like heating, electricity generation, and oil sands production… the actual production of Natural Gas in North America is set to enter permanent decline in the very near term (2-3 years according to many estimates including Natural Resources Canada and others).

And unlike oil wells, when gas “dries up”, it does so very very quickly. A well can go from producing peak production, to nothing, in 2-3 years. Canada is, by far, the US’s biggest source of Natural Gas. They would need 5x the amount of LNG imports to make up the difference. This is why talk of Alaska and Mckenzie Delta pipelines is so prevalent in energy circles today. The US has nowhere else to turn.

Canada, like most nations, is largely defined by the confrontations and hardships that have shaped it. The War of 1812… The uprising of Louis Riel… The Great War… The Depression… World War II… the start of Canadian peacekeeping… The rise of Quebec nationalism in the 70s… accepting Draft-dodgers during Vietnam… NAFTA… the 1995 Quebec Referendum…

It could be that for the first time in 200 years we are confronted with the possibility of coming to blows, if not militarily, then certainly politically and economically with our closest friend.

There are ways to head this off before it happens… but if we continue on the path of blissful ignorance and greed as we are now… then this confrontation may be inevitable.

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