As the United States looks at strategies to reduce its reliance on foreign energy sources, it’s critical that Canada be seen as a friendly neighbour able and willing to step in, says the vice-president of the Conference Board of Canada.

Gilles Rhéaume says the U.S. marketplace is dependent on foreign imports for more than 50 per cent of its energy needs, and wishes to reduce that vulnerability while meeting growing demand.

“It is important that the Americans have a widespread perception that Canada is a reliable continental source. Security of supply has become top of mind in Washington,” Rhéaume told a conference on strategic options for growth in oil and gas companies last week in Calgary.

Gilles Rhéume

“It’s very important that we are perceived as being ‘non-foreign,’ and that we are a reliable, friendly neighbour that can supply them.”

Last month, top Alberta oilpatch CEOs and executives from the Canadian Association of Petroleum Producers (CAPP) met with government officials and other oil and gas associations in Washington to remind them of Canada’s role and ability in meeting the North American demand for ample, secure and safe energy supplies.

According to CAPP, Canada produced 2.2 million barrels of crude oil per day and 17.1 billion cubic feet of natural gas per day in 2000. This country exported about 1.3 million barrels per day of crude oil, primarily to refineries in the central and western United States, and about 3.3 trillion cubic feet per year of natural gas – about nine per cent of U.S. crude oil consumption and 15 per cent of U.S. natural gas demand.

The U.S. is facing several thorny policy issues, said Rhéaume, including how to boost supply without causing a politically unacceptable toll on the environment and how to reduce domestic gasoline consumption while boosting cleaner but more expensive alternative fuels and technologies.

“Contrary to the other rounds of energy policy debates in Washington where they decided to let the market work, they’re looking at more government intervention as an option.”

The conference also heard that while tremendous exploration opportunities remain in the Western Canadian and U.S. sedimentary basins, production will continue to fall as the historic basins diminish with age.

“The beginning of the levelling out of production from Western Canada isn’t something we should be particularly surprised about. At 17 or 18 bcf per day production, it’s a great place to explore and develop new supplies,” said conference keynote speaker Jim Gray, co-founder and former chairman of Canadian Hunter Explor-ation Ltd.

“But it’s going to get tougher and tougher to sustain that production.”

Gray told the conference that he believes liquefied natural gas (LNG) – gas chilled to liquid form so it can be shipped without a pipeline – may be the sleeper solution to skyrocketing costs of the proposed $20-billion Alaskan pipeline.

Unlike producing and moving northern gas, the cost of LNG is declining as worldwide trade increases, Gray said. LNG imports by the U.S. have increased from about 70 million cubic feet of gas per day in 1995 to 700 million per day in 2001 from nine countries.

“LNG definitely becomes competitive with gas in the $3 to $4 US range,” Gray said. An estimated cost of $5,000 for each one million cubic feet-per-day capacity on the proposed Alaskan pipeline would be closer to $1,500 for the same amount produced by a fully operational LNG plant, he said.

“I believe the LNG option is one of the strongest energy cards that have yet to be played,” said Gray, adding liquefied gas will join a range of energy solutions including cleaner coal, conservation, tarsands and, ultimately, nuclear and hydrogen.

“Over the next four to five years, there is a strong likelihood that North America gas demand will continue to rise and will outstrip supply from conventional U.S. and Canadian basins,” he said. “Somebody has got to ask, where, when and at what cost are these new supplies going to be secured? They aren’t going to come from our producing basins at these prices.”