01/25/2012 09:38 am ET Updated Mar 26, 2012

Chilly Reception Awaits U.S. Energy Companies in Canada

On the same day the Obama Administration put the kibosh on the Keystone XL pipeline, two engineering contracts totaling $12.2 billion were awarded to two U.S. companies for work in the Alberta oil sands. One included a $750 million contract to a Chicago-based company for work on Exxon's huge Kearl Oil Sands project, one of the largest it has anywhere in the world.

Good thing for those U.S. engineering companies there are no "Buy Canadian" provisions in oil sand contracts like there are "Buy American" provisions in U.S. federal procurement. But U.S. oil companies may soon find a less hospitable political landscape north of the border. After Obama sandbagged TransCanada, and all the Alberta producers that were going to supply it, I wouldn't want to be a U.S. pipeline company looking for regulatory approval in Canada these days.

When it comes to energy markets things can change in a hurry. No doubt rainmakers in Calgary's Petroleum Club are already starting to brush up on their Mandarin. How the goal posts have moved.

It wasn't that long ago when I was chief economist at CIBC World Markets that Alberta government officials would tell me in no uncertain terms the province wasn't looking for investment from state-owned oil companies.

Since then, China's state owned refining company, Sinopec paid more than $4.5 billion for a 9 percent stake in Syncrude, one of the largest oil sand producers in the province. Similarly, state-owned Petro China spent about $2 billion acquiring full control of the Mackay River project from Athabasca Oil Sands Corp.

State-owned Chinese energy companies are not pouring billions of dollars into developing Alberta's oil sands so more synthetic crude or bitumen can be sent to refineries in Cushing, Okla. While the sudden about-turn by the Obama Administration may have been a rude awakening for some folks in Calgary's Petroleum Club, in the end it only serves to reroute Canadian oil to where world markets will ultimately dictate that it flow.

Prime Minister Harper once remarked it was a no brainer for the Keystone XL pipeline to connect Alberta oil sand product to supply U.S. markets. Looking at geography, it is easy to understand the remark. But looking at where market growth will occur, the prime minister's sentiments are misguided.

U.S. gasoline consumption continues to fall, and it is now down to the lowest levels in more than a decade. The future of the oil sands lies with the growth of oil demand in Asian markets, not in American ones. And that future, more than any regulatory decision in either the United States or Canada, will depend on the price of oil.