“The Canadian oil sands” isn’t a solution Speaker of the US House of Representatives Nancy Pelosi (D-CA) would include in her ideal energy plan. Nevertheless, she left both sides of the oil sands debate in Canada happy following her visit to Ottawa in early September, though the Speaker’s tone in public comments following the meetings strongly suggests she won’t oppose US State Dept approval of TransCanada Corp’s (TSX: TRP, NYSE: TRP) Keystone XL pipeline, which is due sometime before year’s end.

Ms. Pelosi represents one of the most progressive Congressional districts in the country, San Francisco; although her actual words were non-committal–she said in a statement issued afterward that the meetings “confirmed that the United States and Canada share a strong commitment to addressing climate change and energy security”–the dramatic shift from her prior opposition to the oil sands is telling.

While she may not win reelection by as large a margin as she is accustomed to come November, reality dictates that the No. 3-ranking US elected official (for now) get with a program that recognizes the need to encourage the development of new, cleaner technologies and also acknowledges that synthetic crude produced from Canada’s oil sands is essential to US energy security.

There’s progress being made on the technology front. But there’s no way the US will find a better energy friend than it already has in Canada.

Surface mining accounts for 55 percent and in-situ 45 percent of oil sands production. However, in-situ production is expected to surpass surface mining production by 2016. This is a matter of necessity: 80 percent of total reserves–135 billion barrels–are only recoverable only through in-situ technologies because the oil sands are so deep that the costs of removing the overburden for open-pit extraction are prohibitive.

Combined with the high operating costs inherent in traditional extraction methods, increasing pressure from environmental stakeholders concerned with the size of the mining footprint and the widely shared desire for “energy independence,” there’s plenty of incentive for Ms. Pelosi to support, tacitly or expressly, significant investment in oil sands technology development.

In-situ technologies currently in use include steam-assisted gravity drainage (SAGD) and cyclic steam simulation (CSS). Research is underway for further, potentially more cost-effective and less environmentally intrusive technologies. One is vapor extraction (VAPEX),  which uses hydrocarbon solvents instead of steam to dilute the bitumen in place, allowing the bitumen to release from the sand and to flow more easily for extraction at lower heat and thus with lesser energy input.

Petrobank Energy and Resources Ltd (TSX: PBG, OTC: PBEGF) is testing toe-to-heel air injection (THAI) at its Whitesands project. Excelsior Energy Ltd (TSX-V: ELE, OTC: EXEYF) is developing combustion overhead gravity drainage (COGD), which it claims will recover twice the oilwith only 20 percent of the energy input necessary for traditional SAGD. Cenovus Energy (TSX: CVE, NYSE: CVE) plans to test a solvent-assisted steam process that it says could cut greenhouse gas emissions by 25 to 30 percent.

It’s a little known fact that Canada is the largest exporter of oil to the United States. It’s been the leader since 2000, when, at 16.4 percent, it beat out Saudi Arabia (15.2 percent), Venezuela (14.8 percent) and Mexico (9.8 percent). Last year Canada provided 23.2 percent of US imports, topping Venezuela (10.7 percent) and Saudi Arabia (10.4 percent). The top 10 US suppliers, which together accounted for about 85 percent of imports, also included Nigeria (8.2 percent), Russia (5.8 percent), Algeria (5.1 percent), Angola (4.7 percent), Iraq (4.7 percent) and the Virgin Islands (2.8 percent).

That’s not exactly a who’s who of pro-American nations. And even those with whom the US shares relatively cordial relations are nowhere near as conveniently located as Canada.

A growing share of those US imports comes from the Canadian oil sands region, an area the size of Florida that’s home to approximately 175 billion barrels of recoverable crude, the second-largest store in the world behind Saudi Arabia’s. In 2008 oil sands production represented approximately half of Canada’s total crude oil production. The Canadian Association of Petroleum Producers (CAPP) estimates that the oil sands will contribute 53.5 percent of total domestic output in 2010, or 1.5 million barrels per day. According to the most recent CAPP forecast, output will nearly double over the next decade.

Although US crude consumption declined during the Great Recession the resumption of some approximation of normal economic activity has sent burn rates soaring again, and oil sands production in Alberta and Saskatchewan is in high gear again: There are more than 27,700 oil sands workers right now, 3 percent above the previous peak established in 2008.

Absent a disruptive innovation that makes renewable energy scalable at an affordable cost the US will consume a lot of fossil fuel over the next several decades. With less than 5 percent of the world’s population the US accounts for more than 22 percent of daily global crude consumption, about 21 million barrels per day. Domestic consumption is forecast to reach 28 million barrels per day by 2025, even as the developing world, including China and India, uses more and more fossil fuels to sustain rapid economic growth.

Soon the share of total US oil imports sourced from Canada will be 33 percent, most of that comprised of oil sands output. Canadian output from conventional sources has been declining for more than a decade; crude from Alberta’s and Saskatchewan’s oil sands already make up more than 10 percent of America’s fossil fuel imports.

TransCanada’s 1,675-mile Keystone XL pipeline, if it gets built, will carry more than 900,000 barrels per day of oil sands output to processing facilities in Oklahoma and Texas. High-grade crude from domestic US producers in places like North Dakota will also be able to tie in and get their easily refined output to markets where they can receive premium prices for it. It would, for all intents and purposes, enable the doubling of Canadian oil sands imports to the United States. 

It’s a messy business, but right now there is no reality-based alternative to the carbon-based economy, and there are few sources for crude that aren’t controlled by unstable or unfriendly political regimes. The build-out of the infrastructure to support a renewable revolution could be the key to re-starting the American economic growth engine. Someday we’ll get there, and we hope our children (or their children) are there to enjoy the full glory of the renewable era.

In the meantime, the US needs the Canadian oil sands.

Editor’s Note: For additional information on this topic, check out Roger Conrad’s latest report on Canadian Income Trusts.