An Energy Security Plan for Canada: Don't Let the eastern Bastards Freeze in the Dark

Posted September 29, 2006 in [Energy]

Appearing before the Alberta Government's hearings on the tar sands, the Parkland Intitute's Gord Laxer argues the case for a national energy security policy and strategy.

Presentation to Oil Sands Consultation Committee

Sept 25, 2006

An Energy Security Plan for Canada – Don’t Let the Eastern Bastards Freeze in the Dark

By Gordon Laxer

Political Economy Professor, and The Director and co-founder, Parkland Institute
University of Alberta

On March 8, 2006, Premier Klein made a remarkable and admirable pledge. “If we see oil drying up and we see the Alberta supply being threatened and the Canadian supply being threatened, we can do whatever is necessary to ensure that Canada receives its supplies first” .

To show that this astonishing promise was not one of the Premier’s famous offhand comments, two ministers echoed Klein’s remarks. “When we look at the long-term need for Alberta and Canada”, stated Energy Minister Greg Melchin, “those are first and paramount”. Environment Minister Guy Boutilier chimed in that “We want to ensure that we supply the needs of Canadians” .

These are the kinds of generous promises to fellow citizens in other provinces we would expect from Alberta’s political leaders. But they are not Alberta’s nor Canada’s present policies. They should be.

The Premier and his ministers made these promises in response to a report released by Parkland Institute, the Canadian Centre for Policy Alternatives, and Polaris Institute. Entitled Fuelling Fortress America. A Report on the Athabasca Tar Sands and U.S. Demands for Canada’s Energy, written by Hugh McCullum, the report warned that Canada was running out of conventional oil – fewer than 10 years supply, and that tar sands oil came at too high a cost environmentally, socially and in billions of dollars in royalties foregone to the big, foreign-owned transnationals.  Responding to the Report, Premier Klein first claimed there is “a 300-year supply of oil in the tarsands”, before making the Canada-first oil pledge. Similarly, Minister Boutilier added that “there’s a lot of oil to go around”.

Indeed, Alberta has plenty of oil, more than enough to meet Eastern Canadians’ needs, and export surpluses. But Alberta cannot supply Eastern Canada, even if a crisis hit and they were freezing in the dark, because NAFTA reserves Alberta’s oil for Americans’ security of supply. Although Canada is a net exporter of oil, we import almost one million barrels per day to meet 90% of Quebec’s and Atlantic Canada’s needs, and 40% of Ontario’s. At the same time, Canada exports 63% of its oil and 56% of its natural gas production to the US. Those export levels are currently locked in place by NAFTA’s proportionality clause, which states that Canada must continue exporting the same proportion of oil and gas as in the past three years, even if Canadians run short. As well, there is not sufficient, east-west pipeline capacity to fully meet Eastern needs.

How can we make good on Premier Klein’s March 8th pledge? As an increasingly influential province, and home to most of the oil in Canada, Alberta has national leadership responsibilities. The tar sands will soon produce more than half of Canada’s oil. Yet 75% of that output is exported.

‘Oil security’, ‘oil independence’ and even ‘domestic ownership’ are frequently   discussed in the United States and other countries, but not in Alberta or Canada. That is why I am introducing them into visioning discussions on the future of the tar sands.

We must ask questions about the big picture. What is the purpose of developing tar sands oil? Who will receive it? Will it be there for Canadians when the next oil supply crisis hits? How can Alberta play a leading role in Canada and the world in reducing green house gases?

Security of supply for Canadians is the key to today’s most important energy issues: 1) political instability 2) climate change and extreme weather 3) NAFTA’s proportionality clause, and 4) planning for peak oil. 

First, political instability. Last year, 42% of Canada’s oil imports came from the North Sea, with 26% from Norway alone. North Sea oil is secure, but is a declining field. Imports dropped 6 percentage points from 2004. But, OPEC accounts for the same proportion of Canadian imports – 41%. Algeria, Saudi Arabia and Iraq head the list. Imports of liquefied natural gas are still fairly negligible, but at the July G8 meetings in St Peterburg, Canada began negotiations to send Russian gas to Quebec. It is very risky for the ‘great white north’, where residents heat their homes with oil and gas, to rely on Russia.  Last winter Russia cut natural gas exports to Ukraine because of a political dispute. Who can predict Canada’s future relations with Russia?

Natural gas for Canadians is not off topic in discussing the tar sands, because gas is the main fuel used to heat bitumen for extraction. And Canada has only 8.7 years of proven supplies left. Why not instead use remaining gas supplies to send to the East, and as a feedstock for Alberta’s vital petrochemical industry?

Second, climate change. Last year, Alberta sent extra oil south after Hurricane Katrina. This was a generous gesture, but we could not do the same for Nova Scotia, if hit by a devastating hurricane.

Oil Shockwave, a scenario developed by the U.S. National Commission on Energy Policy, warns that oil disruptions could lead to a world shortfall of three million barrels, 4 per cent of global supply, a day. The world price would rise to $161 (U.S.) a barrel. Gasoline would cost $5.74 (U.S.) a gallon ($1.78 Canadian a litre).

Mexico could weather such a supply shock. Its independent policy ensures first access for domestic needs. The US has a nationally-oriented plan and an emergency stock pile. Of the three NAFTA countries, only Canada has no plan. If there is an energy tsunami, in which of the three NAFTA countries is citizens survival most at stake?

Third, the best environmental policies will not help much as long as Canada is locked into exporting the majority of its oil and natural gas. You won’t convince Canadians to consume much less, as we must, if because of NAFTA’s proportionality clause, we just export the energy saved to the wasteful USA. Why should northern Alberta be the continent's ‘environmental sacrifice’ zone?

Fourth, making a plan. Alberta has no plan for tar sands development, or its end uses. Neither does Canada have an energy security plan. But the U.S. has a self-billed ‘national’ plan to ensure supplies.

In 2001, a committee headed by Vice President Dick Cheney, issued a NEP, the US ‘National Energy Policy’ Report which emphasized energy security and self-sufficiency.  We need to re-introduce these goals into the Canadian lexicon in this new security era. “We are self-sufficient in virtually all our energy resources except oil”, the U.S. NEP states. To resolve the growing crisis of securing supply, the US increased incentives for domestic exploration, diversified import sources, and, many claim, sent its military abroad to, amongst other things, secure oil imports.

The U.S. NEP Report recommended “supporting American energy firms” [NEP Report 8-6.] Last year, Congress was ready to block a Chinese takeover of US-owned Unocal.

We can learn from these American initiatives that we are no longer in the 1990s when it was widely assumed that oil was plentiful, prices would stay low, imports were secure, peak oil was a long way off, warnings of dramatic climate change overblown. Based on those assumptions Canada agreed to the energy proportionality clause in the Free Trade Agreement and NAFTA. We must revisit this clause. “Security now trumps trade”. Alberta’s role is crucial in the rethinking. Albertans were leaders in adopting those policies in the 1990s, and should be leaders in the new era too.

Positive things to learn from the US case: 1) priorize security of supply for domestic citizens and industry, 2) adopt energy self-sufficiency policies, 3) get in line with American and Canadian public opinion and ensure domestic ownership and control, and 4) develop large strategic reserves of oil and gas for use in emergencies, and to ride out supply crunches and price shocks. Alberta should develop its own emergency reserves.

What should we do differently than US? Get off the ‘addiction’ to oil. Concentrate on living off your own resources. Take international responsibilities seriously and substantially reduce green house gases, of which the tar sands are Canada’s single largest source.

To conserve energy, Canada must first regain control over energy supply and use. Our NAFTA partners already have this. Only Canada must export a majority of its energy in perpetuity. Canada, with Alberta’s backing, should demand a Mexican exemption. Mexico is in NAFTA and got an exemption from proportionality. Why can’t we get the same? If the U.S refuses to budge on this, we are allowed to unilaterally leave NAFTA by giving six months notice. NAFTA isn’t of much use. The U.S. ignores rulings favourable to Canada, and insists on those, like proportionality, which aren’t. If one party ignores an agreement, other parties aren't bound by them either.

What might an energy security strategy for Canada look like? In contrast to the 1980 national energy program that Ottawa imposed, a security strategy must be a provincial-federal partnership. What could it include? First, the Dinning principle: R. J. Dinning headed a 1949 Alberta commission that recommended the province retain 50 years supply of natural gas before exporting to other provinces. The Dinning principle that only after Canadians are taken care of should energy surplus to long-term reserves, be exported, should be extended to oil. But, with dwindling, conventional oil and gas supplies, the period of proven supplies before exports, should be 10 to 15 years. 

Second, halt projects in the tar sands which have not yet been approved. Replace them with aggressive conservation initiatives. More can be gained by reducing energy use than through more production. Using less will prolong energy supplies and reduce green house gases. Banking oil for the future will increase its value when it's removed in 15 years.

Third, raise royalty and lease rates, and taxes to Norway’s levels to capture the full value of nature's capital, for the owners - the citizens of Alberta and First Nations. Follow public opinion and include Crown energy corporations, like Norway’s Statoil, to capture more of the economic rents. Fourth, reverse the Sarnia-Montreal pipeline and bring western oil to Quebec again.

Fifth, change Alberta’s leasing policies so that no further oil is exported until Canadian needs are met.

But, we are not doing these things. ‘No plan’ Ralph inadvertently captured Canada’s current energy policy when he said 25 years ago: “Let the Eastern Bastards Freeze in the Dark”. Today, thanks to governments led by Klein, Harper and his Liberal predecessors, Canada has an America-first energy policy. When, not if, the first big energy crunch hits, Canadians will demand that their governments meet their needs first.

These issues and more are addressed in the Parkland’s publications which I encourage the panel to read:
• Fuelling Fortress America
• Toward an Energy Security Strategy for Canada: A Discussion Paper
• Back to Hewers of Wood and Drawers of Water: Energy, Trade, and the Demise of Petrochemicals in Alberta
• A Time for Vision: A Sustainable & Equitable Economy
• Giving Away the Alberta Advantage: Are Albertan's receiving maximum revenue from our oil and gas?

To conclude, since 9/11, security trumps trade in the U.S. For us, this means energy security for Canadians trumps NAFTA. Alberta and Canada should fulfil our Kyoto obligations, but we cannot unless we adopt a Canada-first energy security strategy. Let’s make the changes to ensure that Alberta can meet Premier Klein’s March 8 pledge to Eastern Canadians.