North American Energy Markets: The Evolution of Energy Interdependence between Canada and the United States

Abstract

Energy trade between the United States and Canada is growing from a minor aspect of the markets in the United States to a significant development with material impacts on energy prices in the United States and a major aspect of Canada's energy economy.

This development is most pronounced in natural gas, where Canada's large resources and flexible approach of negotiated transactions is leading to regrowth of exports. For the United States, Canada serves as a buffer from potential high prices as a result of resource depletion. This price impact is potentially substantial over the next 10 years. Imports will likely double by 1990 and will further increase thereafter.

In electric power, the impacts are regional; in the affected regions, Canadian ratepayers will be spared the high costs of overcapacity and will benefit from provincial profits from exports. Ratepayers in the importing regions—New York, New England, and potentially California—will benefit from the fact that Canadian power is available at substantially lower rates than alternative sources in the United States.

In petroleum, Canada, Mexico, and the Caribbean are main exporters to the United States. Price decontrol will help free interdependence of domestic Canadian markets with Canadian trade with the United States, but, overall, little change is expected from the present pattern.