Canada , the US , and Oil -- An Increasingly Bizarre Relationship
By Tom Whipple
Falls Church News-Press, On-Line Issue
March 16-22, 2006
The issue is back again. This time a trio of Canadian research organizations has released a harsh report entitled Fuelling Fortress America , that calls into question the basis of Canada 's energy relationship with the US .
The story goes back to the 1980s when the Mulroney government dismantled Canada 's National Energy Policy by stripping regulatory powers from its National Energy Board, allowing US oil companies to invest in Canada , and removing a "vital supply" policy that required the country to have a 25 year reserve of oil and gas available before exports were allowed.
The situation was complicated further by the incorporation of articles into the 1989 North American Free Trade Agreement (NAFTA) that banned Canada from placing any restrictions or taxes on exports of gas and oil to the US . Another article of NAFTA known popularly as "proportional sharing" says that if Canada should ever want to conserve or be forced to cut back on oil or gas production, it must, under NAFTA, continue exporting to the US the same proportion of its total supply (production + imports) that was exported during the previous three years. Mexico , also a party to NAFTA, received an exemption from these clauses in return for other concessions.
In the years since NAFTA was signed, Canadian exports of oil and gas to the US have nearly doubled. In the spring of 2004, Canada became the largest foreign supplier of oil to the US . By December 2005, Canadian oil imports had reached 2.6 million barrels a day, thus surpassing total US imports from the Persian Gulf .
In recent years, production of conventional oil in Canada has been running about 1.4 million barrels a day. Over the next ten years this output is projected to drop to about 500 thousand barrels a day, although there is some hope CO2 injection might delay this decline for a while. Added to the production of conventional oil, however, is the output of synthetic oil cooked from the Alberta tar sands which, at great monetary, environmental, and social cost, is now running about 1 million barrels a day.
Thus, the conventional oil (from wells) situation in Canada is pretty straightforward. They are currently producing 1.4 million barrels a day, consuming about 1.7, and are expecting production to deplete to about 500 thousand barrels a day over the next decade, unless, there are major new discoveries in the polar regions. Canada consumes about 1.7 million barrels a day and imports oil to make up whatever is needed after exports to the US are subtracted from production. This may not be as bad as it sounds, for it is cheaper to send oil by pipeline to the US 's mid-western states and to supply Canadian costal provinces with foreign crude brought in by tanker.
Enter the Athabasca tar sands of northern Alberta , constantly heralded as the future of the oil age. These sands contain either 200 billion barrels of "oil," or perhaps even 2.5 trillion if we improve extraction technology. Keep in mind, the world is currently consuming about 31 billion barrels per year. Thus, at first glace, it looks as if the tar sands alone could keep the world going for 7 years or perhaps 70, even if all the conventional oil sources in the world dried up.
Three companies in Alberta are already producing about 1 million barrels a day and plans are in the works to expand this to three million over the next 15 years. The chances are, however, this will never come to pass, for the mounting downsides of extracting usable fuel from the tar sands may soon override possible benefits. The major problem is the need for prodigious quantities of natural gas, a fuel soon to be in very short supply, to melt the tar from the sand. To overcome this obstacle to further production, tar sands developers are planning to build a special pipeline from gas fields in Canada's far north to supply the needed gas. Given that major shortages of natural gas, resulting in dramatic price increases, are coming soon, it is doubtful that using valuable and versatile natural gas to melt tar out of sand will continue to make economic sense.
The list of negatives to increased production from the tar sands goes on and on and on— massive CO2 emissions, massive need for fresh water, production of toxic wastewater, huge capital investments, inhospitable climate, social problems, to name a few. On top of all this, the oil companies currently pay only a one percent royalty fee for the energy they extract, an amount that does not begin to cover the costs of the mess they make. The authors of “Fueling Fortress America ” conclude the only rational course for Canada is a moratorium on further tar sands development until such time as all the long-term implications and economics of tar-sands-to-fuel projects are understood.
Moving on, the report calls for Canada to develop a real long-term energy policy controlled by its National Energy Board and not by the profit motive of unregulated foreign oil companies. Moreover, the authors call for Canada to obtain an exemption from the absurdity of the "proportional sharing" clauses of the NAFTA agreement. Failing this, they recommend Canada withdraw completely from the agreement. As long as Canada is required by treaty to export the bulk of its oil and gas to the US , there is no way it can ever obtain energy security.
With a population of 33 million, Canada is one of the few industrialized nations in a position to supply its own oil and gas needs for the foreseeable future. The ball is now in the court of the new Conservative Canadian government. Although their instincts are probably on the side of laissez-faire and let-capitalism-do-its-thing, peak oil will soon bring new set of pressures on Ottawa . Canadian oil prices are now inextricably bound to the world market. The next time world gasoline prices spike, the demands from Canadian citizens will force new policies.
Warning to America ! Unrestricted exports, proportional sharing, and dreams of unlimited access to what the oil companies like to call "oil sands" do not have much of a future. "Secure" Canadian oil just might turn out to be much less secure than we think.
