Canada’s Oil Achilles’ Heel
Oil may be trading at $100 per barrel, and Canada may have a trillion barrels of tar sands, but nevertheless Canadians could be in for a long, cold, dark, economically crippling winter.
Canada is an “energy superpower” according to Canadian Prime Minister Stephen Harper. And superficially it might seem that Mr. Harper is right. Taking into account Alberta’s oil sands deposits, Canada is second only to Saudi Arabia in terms of proven oil reserves.
In fact, Canada produces over 3.2 million barrels per day, of which more than 2.3 million barrels per day are sold to the U.S., making Canada America’s chief foreign supplier of oil.
But this northern “energy superpower” has a dangerously exposed Achilles heel.
Canada may produce more oil than it consumes, but Canada exports so much to the U.S. that as a nation, Canada doesn’t have enough remaining oil to take care of its own daily needs. Quebec and Atlantic Canada are forced to import fully 90 percent of their oil consumption, while Ontario imports 40 percent.
Despite practically unparalleled wealth in terms of energy resources, the eastern half of Canada remains critically dependent upon the kindness of foreign nations—including politically unstable nations such as Algeria, Iraq and Saudi Arabia—to provide its daily oil needs. Without Middle East oil, everything from Ontario’s manufacturing hubs and Quebec’s lumber industries to Atlantic Canada’s quaint bed and breakfasts would quickly go dark and cold.
“No one is looking after energy security in Canada. It’s a total dereliction of duty by federal authorities,” says Dr. Gordon Laxer, founding director of the Parkland Institute and political economy professor at the University Alberta. “In a northern country like Canada, people can freeze in the dark. It’s a disgrace. The government is so concerned with exports and fear of taking on the oil industry in Alberta that they are not taking care of Canadians.”
Nova Scotians got a small taste of what the future may be like last December when they were hit with furnace-oil shortages due to an early winter and a single late-arriving tanker. “If the tanker had been delayed a few more days,” wrote the Canadian Broadcasting Corporation, “Cape Bretoners would have been shivering in the cold.”
“Half of the homes in eastern Canada are dependent on oil to heat them,” says Polaris Institute director Tony Clarke. “Just think if something were to happen to those shipments and supplies, what would happen to eastern Canada as a result?” Clarke said Canada faces the real possibility of supply disruptions due to natural disasters, terrorist attacks and even blockades.
So it might come as a surprise to many Canadians that Natural Resources Minister Gary Lunn just slammed the recommendations of a recently released academic report that concluded that Canada was not only vulnerable to petroleum supply disruptions, but should establish a strategic petroleum reserve that could be used to meet future oil needs in times of crisis.
The report, titled “Freezing in the Dark: Why Canada Needs Strategic Petroleum Reserves” and co-authored by the Parkland and Polaris Institutes, warns that “Canada is recklessly unprepared for the next global oil crisis,” and that “despite its abundance of oil, Canada is the most vulnerable member of the International Energy Agency (iea) to short-term shocks.”
The report highlights two reasons why Canada is especially vulnerable to oil shocks, despite the fact that it is one of the world’s leading exporters.
The first reason, according to the report, is unwise economic agreements signed by the Canadian government. Under the nafta (North American Free Trade Agreement) treaty, Canada is compelled to sell a non-negotiable 67 percent of the oil it produces to the U.S. The agreement includes a “proportionality” clause, which prohibits Canada from reducing this proportion even in times of crisis. It also means that America is legally entitled to purchase 67 percent of all new Canadian oil production regardless of how much oil Canada needs in the future. If oil supplies from the Middle East were cut off, under nafta, Canada could not legally reduce exports to the U.S. to supply domestic needs first. It would have to find alternative sources of oil.
Secondly, the report notes that since Canada joined nafta, pipeline development connecting western Canada’s vast energy reserves to the east has been neglected. Instead, new pipeline infrastructure has been dedicated to channeling the oil from north to south. Existing pipelines that previously transported western Canadian crude to Ontario and Quebec have been reversed and now bring offshore Newfoundland oil through Quebec and southern Ontario into Michigan. The report also indicated that even if the now-east-to-west pipeline was again reversed, it did not have enough capacity to supply central and eastern Canada with western oil in times of supply shock.
The report concluded that in an era of tightening global oil supplies due to growing demand, stagnating supply, geopolitical disruptions, terrorism and other factors, any nation that wants to maintain energy security must focus on four areas:
1) Locking in long-term oil supply contracts
2) Developing the military might to obtain and protect the flow of oil
3) Prioritizing domestic oil needs above oil exports
4) Developing strategic petroleum reserves to temporarily supply oil in times of crisis
Currently, Canada is failing in all four areas. Eastern Canada does not have long-term oil-supply contracts locked in; Canada’s navy is small and has no vessels larger than multi-role patrol frigates; nafta prohibits Canada from reducing the proportion of oil sent to the U.S.; and Canada is virtually the only industrialized nation in the world that does not have an emergency oil reserve.
Shocking stuff for a nation that believes it is an “energy superpower.”
After the report’s release, Resource Minister Lund was asked about the possibility of building a petroleum reserve. Lunn’s response to reporters outside of parliament was that an oil stockpile was unnecessary because Canada was “the only country in the International Energy Agency … which is not required to have strategic oil reserves because we’re the only country that has a net export of oil.” He avoided or seems to have missed the point completely.
Yes, the International Energy Agency (iea) is an organization that only requires member countries that are net oil importers to maintain oil reserves of at least 90 days. And yes, Canada is exempt from this rule because technically Canada is a net exporter, even though many of its regions, in reality, rely heavily on imports. But just because Canada is exempt from a rule requiring a national oil reserve doesn’t mean it isn’t prudent to have one, especially since half of Canada is critically dependent on imports. As Cape Bretoners found out, you miss just one oil boat, and it won’t take long for the lights and heat to go out.
Canada is one of just two countries out of a total of 27 iea members that does not have a strategic petroleum reserve. Norway is the other, and it doesn’t need a reserve because it—as logic would dictate—supplies its own needs first before exporting what is left. Canada must be a very giving and trusting nation to sign oil deals that put the energy welfare of other nations before its own.
In most of the rest of the world, however, energy concerns are much more reality-based. The United States, for example, has plans to not only maintain, but to double its strategic petroleum reserve capacity. China began filling its oil reserve in 2006 and plans to raise it from around 22 million barrels to 87 million barrels by 2010. India too is rapidly expanding its oil reserve capacity.
Canada’s vast oil fields have turned into a curse. Over 175 billion barrels of proven oil may make Canadians feel safe, but that sense of complacency has left the greater portion of Canada critically exposed to the elements. Half of Canada—the section containing what is left of Canada’s heavy industry and manufacturing—could go “stone-age” over a period of a few weeks. With 40 percent of Ontarians and 90 percent of Quebecers and Easterners looking to foreign nations to provide their oil needs, Canada as an “energy superpower” is only a political platitude.
The neglect of Canadian energy security is a sad reflection of a general lack of reality-based vision concerning world conditions. Russia, Europe, China and other nations are rushing to snap up strategic oil supplies and lock in long-term supply contracts. And oil is increasingly becoming a geopolitical weapon.
“The battle for global resources has already begun,” says commodity analyst Kevin Kerr. “[T]he borders are being drawn and the players are suiting up. The grim reality is that commodities are being gobbled up around the globe, and as Earth’s population surges past 6 billion, resources are being stretched to the limit.”
Meanwhile, Canada remains blissfully ignorant of the resource crunch looming on the horizon.
The ultimate solution to Canada’s security situation can be found in the book The United States and Britain in Prophecy. For more information on how the looming resource war is destined to play out, read “The Battleground” and “Stoking the Engines of Empires.”
