As of today, former U.S. Vice President Joe Biden seems to have a clearer path to the presidency though the outcome of several legal challenges is unknown. Biden’s potential – perhaps even likely – victory will have serious implications for countries such as Canada, and in particular, for our oil and gas industry, which is already suffering from the recession, declining investment and an hostile regulatory environment.

First and foremost, Biden has pledged to cancel the long-stalled Keystone XL pipeline – a 1,900-kilometre line that would move 830,000 barrels of Alberta bitumen each day to refineries on the U.S. Gulf Coast. We have written previously on the issue of inadequate pipeline capacity and how it has hamstrung Canadian oil producers for years. The lack of sufficient pipeline capacity in recent years (before COVID-19) forced western producers to sell crude at discounts to benchmark U.S. prices, resulting in billions of lost revenues.

In fact, insufficient pipeline capacity cost Canada’s energy sector $20.6 billion—or one per cent of the country’s entire economy—in 2018 alone. With Western Canadian oil production to increase in the coming years, the need for more pipeline capacity is critical to improve the energy sector’s competitiveness and access to markets.

Second, Biden’s ambitious climate plan to wean the US away from fossil fuels will likely have negative impacts on Canada’s future oil and gas exports. As promised during the election campaign, a Biden administration will re-join the Paris climate accord and push other countries to join the US in toughening their climate objectives. He also plans to invest as much as $1.7 trillion over 10 years to boost renewable energy power, speed of the spread of electric vehicles and boost research and development in clean technologies such as large-scale battery power storage, among others.

He has even explicitly stated his desire to “transition away from the oil industry”. Given that Canada is the world’s fourth-largest oil producer and a major exporter to the US, Biden’s climate polices would likely challenge the demand for Canadian energy in the coming years, posing new risks for the sector. Consider that 98 percent of all Canadian crude oil exports and all Canadian gas exports currently go to the US, which again underscores the importance of the US oil and gas market to Canadian producers.

It should be noted that the potential negative impact on future Canadian oil and gas exports to the US market could be mitigated if Biden’s policies, including his promise to ban fracking on federal lands and end federal fossil fuel subsidies, result in lower US crude production, which could allow for increased oil imports from Canada.

Finally, the administration change in the White House is also expected to entail some big reforms in US foreign policy, in particular with Iran and Venezuela – which are both important players in global energy markets. It’s likely that a Biden presidency will relax the economic sanctions Trump imposed on Iran and therefore allow more Iranian crude to enter the world market.

Specifically, loosening sanctions on Iran is expected to open the door for more than 2 million barrels of oil a day of Iranian crude exports. Similarly, economic sanctions imposed on Venezuela could be loosened bythe new administration, resulting in more heavy oil flooding the market in coming years. These actions could potentially lead to an increase of oil supply in an already over-supplied market resulting in a further drop in global oil prices, hurting Canada’s oil industry.

Overall, the importance of the oil and gas sector in the Canadian economy should not be dismissed. Statistics Canada estimates that for each dollar in lost GDP in the oil and gas industry, $1.14 is lost in other industries. Additionally, for each job lost in the oil and gas sector, 6 jobs are lost in other industries. As Biden’s policies pose major risks to the Canadian energy sector, governments across the country should prepare for what could be another blow to one of our country’s most important industries.