Connect with us
[the_ad id="89560"]

Energy

Canada could have been an energy superpower. Instead we became a bystander

Published

15 minute read

This article was originally published in a collected volume, Canada’s Governance Crisis, which outlines Canada’s policy paralysis across a wide range of government priorities. Read the full paper here.

From the MacDonald-Laurier Institute

By Heather Exner-Pirot

Government has imposed a series of regulatory burdens on the energy industry, creating confusion, inefficiency, and expense

Oil arguably remains the most important commodity in the world today. It paved the way for the industrialization and globalization trends of the post-World War II era, a period that saw the fastest human population growth and largest reduction in extreme poverty ever. Its energy density, transportability, storability, and availability have made oil the world’s greatest source of energy, used in every corner of the globe.

There are geopolitical implications inherent in a commodity of such significance and volume. The contemporary histories of Russia, Iran, Venezuela, Saudi Arabia, and Iraq are intertwined with their roles as major oil producers, roles that they have used to advance their (often illiberal) interests on the world stage. It is fair to ask why Canada has never seen fit to advance its own values and interests through its vast energy reserves. It is easy to conclude that its reluctance to do so has been a major policy failure.

Canada has been blessed with the world’s third largest reserves of oil, the vast majority of which are in the oil sands of northern Alberta, although there is ample conventional oil across Western Canada and offshore Newfoundland and Labrador as well. The oil sands contain 1.8 trillion barrels of oil, of which just under 10 percent, or 165 billion barrels, are technically and economically recoverable with today’s technology. Canada currently extracts over 1 billion barrels of that oil each year.

The technology necessary to turn the oil sands into bitumen that could then be exported profitably really took off in the early 2000s. Buoyed by optimism of its potential, then Prime Minister Stephen Harper pronounced in July 2006 that Canada would soon be an “energy superproducer.” A surge of investment came to the oil sands during the commodity supercycle of 2000-2014, which saw oil peak at a price of $147/barrel in 2008. For a few good years, average oil prices sat just below $100 a barrel. Alberta was booming until it crashed.

Two things happened that made Harper’s prediction fall apart. The first was the shale revolution – the combination of hydraulic fracturing and horizontal drilling that made oil from the vast shale reserves in the United States economical to recover. Until then, the US had been the world’s biggest energy importer. In 2008 it was producing just 5 million barrels of crude oil a day, and had to import 10 million barrels a day to meet its ravenous need. Shale changed that, and the US is now the world’s biggest oil producer, expecting to hit a production level of 12.4 million barrels a day in 2023.

For producers extracting oil from the oil sands, the shale revolution was a terrible outcome. Just as new major oil sands projects were coming online and were producing a couple of million barrels a day, our only oil customer was becoming energy self-sufficient.

Because the United States was such a reliable and thirsty oil consumer, it never made sense for Canada to export its oil to any other nation, and the country never built the pipeline or export terminal infrastructure to do so. Our southern neighbour wanted all we produced. But the cheap shale oil that flooded North America in the 2010s made that dependence a huge mistake as other markets would have proven to be more profitable.

If shale oil took a hatchet to the Canadian oil industry, the election of the Liberals in 2015 brought on its death by a thousand cuts. For the last eight years, federal policies have incrementally and cumulatively damaged the domestic oil and gas sector. With the benefit of hindsight in 2023, it is obvious that this has had major consequences for global energy security, as well as opportunity costs for Canadian foreign policy.

Once the shale revolution began in earnest, the urgency in the sector to be able to export oil to any other market than the United States led to proposals for the Northern Gateway, Energy East, and TMX pipelines. Opposition from Quebec and BC killed Energy East and Northern Gateway, respectively. The saga of TMX may finally end this year, as it is expected to go into service in late 2023, billions of dollars over cost and years overdue thanks to regulatory and jurisdictional hurdles.

Because Canada has been stuck selling all of its oil to the United States, it does so at a huge discount, known as a differential. That discount hit a staggering US$46 per barrel difference in October 2018, when WTI (West Texas Intermediate) oil was selling for $57 a barrel, but we could only get $11 for WCS (Western Canada Select). The lack of pipelines and the resulting differential created losses to the Canadian economy of $117 billion between 2011 and 2018, according to Frank McKenna, former Liberal New Brunswick Premier and Ambassador to the United States, and now Deputy Chairman of TD Bank.

The story is not dissimilar with liquefied natural gas (LNG). While both the United States and Canada had virtually no LNG export capacity in 2015, the United States has since grown to be the world’s biggest LNG exporter, helping Europe divest itself of its reliance on Russian gas and making tens of billions of dollars in the process. Canada still exports none, with regulatory uncertainty and slow timelines killing investor interest. In fact, the United States imports Canadian natural gas – which it buys for the lowest prices in the world due to that differential problem – and then resells it to our allies for a premium.

Canada’s inability to build pipelines and export capacity is a major problem on its own. But the federal government has also imposed a series of regulatory burdens and hurdles on the industry, one on top of the other, creating confusion, inefficiency, and expense. It has become known in Alberta as a “stacked pancake” approach.

The first major burden was Bill C-48, the tanker moratorium. In case anyone considered reviving the Northern Gateway project, the Liberal government banned oil tankers from loading anywhere between the northernmost point of Vancouver Island to the BC-Alaska border. That left a pathway only for TMX, which goes through Vancouver, amidst fierce local opposition. I have explained it to my American colleagues this way: imagine if Texas was landlocked, and all its oil exports had to go west through California, but the federal government banned oil tankers from loading anywhere on the Californian coast except through ports in San Francisco. That is what C-48 did in Canada.

Added to Bill C-48 was Bill C-69, known colloquially as the “no new pipelines” bill and now passed as the Impact Assessment Act, which has successfully deterred investment in the sector. It imposes new and often opaque regulatory requirements, such as having to conduct a gender-based analysis before proceeding with new projects to determine how different genders will experience them: “a way of thinking, as opposed to a unique set of prescribed methods,” according to the federal government. It also provides for a veto from the Environment and Climate Change Canada Minister – currently, Steven Guilbeault – on any new in situ oil sands projects or interprovincial or international pipelines, regardless of the regulatory agency’s recommendation.

The Alberta Court of Appeal has determined that the act is unconstitutional, and eight other provinces are joining in its challenge. But so far it is the law of the land, and investors are allergic to it.

Federal carbon pricing, and Alberta’s federally compatible alternative for large emitters, the TIER (Technology Innovation and Emissions Reduction) Regulation, was added next, though this regulation makes sense for advancing climate goals. It is the main driver for encouraging emission reductions, and includes charges for excess emissions as well as credits for achieving emissions below benchmark. It may be costly for producers, but from an economic perspective, of all the climate policies carbon pricing is the most efficient.

Industry has committed to their shareholders that they will reduce emissions; their social license and their investment attractiveness depends to some degree on it. The major oil sands companies have put forth a credible plan to achieve net zero emissions by 2050. One conventional operation in Alberta is already net zero thanks to its use of carbon capture technology. Having a predictable and recognized price on carbon is also providing incentives to a sophisticated carbon tech industry in Canada, which can make money by finding smart ways to sequester and use carbon.

In theory, carbon pricing should succeed in reducing emissions in the most efficient way possible. Yet the federal government keeps adding more policies on top of carbon pricing. The Canadian Clean Fuel Standard, introduced in 2022, mandates that fuel suppliers must lower the “lifecycle intensity” of their fuels, for example by blending them with biofuels, or investing in hydrogen, renewables, and carbon capture. This standard dictates particular policy solutions, causes the consumer price of fuels to increase, facilitates greater reliance on imports of biofuels, and conflicts with some provincial policies. It is also puts new demands on North American refinery capacity, which is already highly constrained.

The newest but perhaps most damaging proposal is for an emissions cap, which seeks to reduce emissions solely from the oil and gas sector by 42 percent by 2030. This target far exceeds what is possible with carbon capture in that time frame, and can only be achieved through a dramatic reduction in production. The emissions cap is an existential threat to Canada’s oil and gas industry, and it comes at a time when our allies are trying, and failing, to wean themselves off of Russian oil. The economic damage to the Canadian economy is hard to overestimate.

Oil demand is growing, and even in the most optimistic forecasts it will continue to grow for another decade before plateauing. Our European and Asian allies are already dangerously reliant on Russia and Middle Eastern states for their oil. American shale production is peaking, and will soon start to decline. Low investment levels in global oil exploration and production, due in part to ESG (environmental, social, and governance) and climate polices, are paving the way for shortages by mid-decade.

An energy crisis is looming. Canada is not too late to be the energy superproducer the democratic world needs in order to prosper and be secure. We need more critical minerals, hydrogen, hydro, and nuclear power. But it is essential that we export globally significant levels of oil and LNG as well, using carbon capture, utilization, and storage (CCUS) wherever possible.

Meeting this goal will require a very different approach than the one currently taken by the federal government: it must be an approach that encourages growth and exports even as emissions are reduced. What the government has done instead is deter investment, dampen competitiveness, and hand market share to Russia and OPEC.

Heather Exner-Pirot is Director of Energy, Natural Resources and Environment at the Macdonald-Laurier Institute.

Business

Premiers fight to lower gas taxes as Trudeau hikes pump costs

Published on

From the Canadian Taxpayers Federation

By Jay Goldberg 

Thirty-nine hundred dollars – that’s how much the typical two-car Ontario family is spending on gas taxes at the pump this year.

You read that right. That’s not the overall fuel bill. That’s just taxes.

Prime Minister Justin Trudeau keeps increasing your gas bill, while Premier Doug Ford is lowering it.

Ford’s latest gas tax cut extension is music to taxpayers’ ears. Ford’s 6.4 cent per litre gas tax cut, temporarily introduced in July 2022, is here to stay until at least next June.

Because of the cut, a two-car family has saved more than $1,000 so far. And that’s welcome news for Ontario taxpayers, because Trudeau is planning yet another carbon tax hike next April.

Trudeau has raised the overall tax burden at the pumps every April for the past five years. Next spring, he plans to raise gas taxes by another three cents per litre, bringing the overall gas tax burden for Ontarians to almost 60 cents per litre.

While Trudeau keeps hiking costs for taxpayers at the pumps, premiers of all stripes have been stepping up to the plate to blunt the impact of his punitive carbon tax.

Obviously, Ford has stepped up to the plate and has lowered gas taxes. But he’s not alone.

In Manitoba, NDP Premier Wab Kinew fully suspended the province’s 14 cent per litre gas tax for a year. And in Newfoundland, Liberal Premier Andrew Furey cut the gas tax by 8.05 cents per litre for nearly two-and-a-half years.

It’s a tale of two approaches: the Trudeau government keeps making life more expensive at the pumps, while premiers of all stripes are fighting to get costs down.

Families still have to get to work, get the kids to school and make it to hockey practice. And they can’t afford increasingly high gas taxes. Common sense premiers seem to get it, while Ottawa has its head in the clouds.

When Ford announced his gas tax cut extension, he took aim at the Liberal carbon tax mandated by the Trudeau government in Ottawa.

Ford noted the carbon tax is set to rise to 20.9 cents per litre next April, “bumping up the cost of everything once again and it’s absolutely ridiculous.”

“Our government will always fight against it,” Ford said.

But there’s some good news for taxpayers: reprieve may be on the horizon.

Federal Conservative leader Pierre Poilievre’s promises to axe the carbon tax as soon as he takes office.

With a federal election scheduled for next fall, the federal carbon tax’s days may very well be numbered.

Scrapping the carbon tax would make a huge difference in the lives of everyday Canadians.

Right now, the carbon tax costs 17.6 cents per litre. For a family filling up two cars once a week, that’s nearly $24 a week in carbon taxes at the pump.

Scrapping the carbon tax could save families more than $1,200 a year at the pumps. Plus, there would be savings on the cost of home heating, food, and virtually everything else.

While the Trudeau government likes to argue that the carbon tax rebates make up for all these additional costs, the Parliamentary Budget Officer says it’s not so.

The PBO has shown that the typical Ontario family will lose nearly $400 this year due to the carbon tax, even after the rebates.

That’s why premiers like Ford, Kinew and Furey have stepped up to the plate.

Canadians pay far too much at the pumps in taxes. While Trudeau hikes the carbon tax year after year, provincial leaders like Ford are keeping costs down and delivering meaningful relief for struggling families.

Continue Reading

Economy

Gas prices plummet in BC thanks to TMX pipeline expansion

Published on

From Resource Works

By more than doubling capacity and cutting down the costs, the benefits of the TMX expansion are keeping more money in consumer pockets. 

Just months after the Trans Mountain Expansion (TMX) project was completed last year, Canadians, especially British Columbians, are experiencing the benefits promised by this once-maligned but invaluable piece of infrastructure. As prices fall when people gas up their cars, the effects are evident for all to see.

This drop in gasoline prices is a welcome new reality for consumers across B.C. and a long-overdue relief given the painful inflation of the past few years.

TMX has helped broaden Canadian oil’s access to world markets like never before, improve supply chains, and boost regional fuel supplies—all of which are helping keep money in the pockets of the middle class.

When TMX was approaching the finish line after the new year, it was praised for promising to ease long-standing capacity issues and help eliminate less efficient, pricier methods of shipping oil. By mid-May, TMX was completed and in full swing, with early data suggesting that gas prices in Vancouver were slackening compared to other cities in Canada.

Kent Fellows, an assistant professor of Economics and the Director of Graduate Programs for the School of Public Policy at the University of Calgary, noted that wholesale prices in Vancouver fell by roughly 28 cents per litre compared to the typically lower prices in Edmonton, thanks to the expanded capacity of TMX. Consequently, the actual price at the gas pump in the Lower Mainland fell too, providing relief to a part of Canada that traditionally suffers from high fuel costs.

In large part due to limited pipeline capacity, Vancouver’s gas prices have been higher than the rest of the country. From at least 2008 to this year, TMX’s capacity was unable to accommodate demand, leading to the generational issue of “apportionment,” which meant rationing pipeline space to manage excess demand.

Under the apportionment regime, customers received less fuel than they requested, which increased costs. With the expansion of TMX now complete, the pipeline’s capacity has more than doubled from 350,000 barrels per day to 890,000, effectively neutralizing the apportionment problem for now.

Since May, TMX has operated at 80 percent capacity, with no apportionment affecting customers or consumers.

Before the TMX expansion was completed, a litre of gas in Vancouver cost 45 cents more than a litre in Edmonton. By August, it was just 17 cents—a remarkable drop that underscores why it’s crucial to expand B.C.’s capacity to move energy sources like oil without the need for costly alternatives, allowing consumers to enjoy savings at the pump.

More than doubling TMX’s capacity has rapidly reshaped B.C.’s energy landscape. Despite tensions in the Middle East, per-litre gas prices in Vancouver have fallen from about $2.30 per litre to $1.54 this month. Even when there was a slight disruption in October, the price only rose to about $1.80, far below its earlier peaks.

As Kent Fellows noted, the only real change during this entire timeline has been the completion of the TMX expansion, and the benefits extend far beyond the province’s shores.

With TMX moving over 500,000 barrels more per day than it did previously, Canadian oil is now far more plentiful on the international market. Tankers routinely depart Burrard Inlet loaded with oil bound for destinations in South Korea and Japan.

In this uncertain world, where oil markets remain volatile, TMX serves as a stabilizing force for both Canada and the world. People in B.C. can rest easier with TMX acting as a barrier against sharp shifts in supply and demand.

For critics who argue that the $31 billion invested in the project is short-sighted, the benefits for everyday people are becoming increasingly evident in a province where families have endured high gas prices for years.

Continue Reading

Trending

X