Canada’s energy security at risk

The choices made today on Canadian energy policy will have an impact on both the future of Canada’s and the globe’s energy security
By Ken Green, Senior Director, Energy and Natural Resources, The Fraser Institute

When we talk about energy policy here in Canada, whether provincial or national, the discussion usually revolves around investment, jobs, revenues, and the environment. That’s generally been the terms of discussion on the recently killed Northern Gateway pipeline: who’ll get the money, who’ll get the jobs, and who’ll bear the risk.

But there’s another dimension to energy policy that is often left out of the discussion, which is the idea of energy security, not only for Canada, but for the world as a whole. And decisions like Northern Gateway do little to add to Canada’s energy security.

A recent Fraser Institute report drills into the issue of Canada’s energy security, drawing from an International Index of Energy Security Risk compiled by the Institute for 21st Century Energy, an offshoot of the U.S. Chamber of Commerce. The Index assesses risks to energy security in 25 countries (using 28 criteria) that constitute the world’s largest energy users over the years 1980 to 2010. Canada makes a strong showing, coming in at number eight in the Index in the 2012 report, but that needs to be taken in perspective: Canada’s energy security risk has been increasing from 2009, and her place on the index is falling: Canada ranked seventh as of 2009. Canada’s ranking is one rank down from the United States.

With regard to Canada, the Chamber’s International Index concludes that: “On balance, Canada’s energy security is about average, but it has tremendous potential to improve its own security. It can also contribute to better the energy security for other nations through further development of its oil sands.”

Ah, but there’s the rub, for the Index observes that such improvement is contingent on market conditions as well as the development of infrastructure that could bring Canada’s oil sands production to market. And there are significant threats on both fronts.

With regard to market conditions, changes in U.S. oil and gas production are rewriting energy market dynamics with amazing speed. Because of those developments, Canada’s unique “market conditions” face a serious challenge in coming years. About 30 per cent of Canadian oil production, and 37 per cent of its gas production are consumed internally. The other 70 per cent of Canadian oil production is exported to the United States, while 63 per cent of Canadian natural gas production is exported to the United States.

According to the Canadian National Energy Board, Canada exported 1.9 million barrels of oil per day, mostly to refineries in the U.S. Midwest. Exports of natural gas were approximately nine billion cubic feet per day in 2010. In 2009, all but 0.8 per cent of Canada’s petroleum exports were shipped to hubs in the United States. That could be a problem, because the International Energy Agency recently estimated that the United States will become a net exporter of natural gas by 2020 and will be almost self-sufficient in energy by 2035. That’s not to say that the U.S. won’t have a market for Canada’s heavy crudes: some U.S. refineries need it, and might prefer a Canadian supplier to, say, Venezuela.

Which brings up the issue of Northern Gateway, Keystone XL and other pipeline access to Canada’s east and west coast: it doesn’t really take an International Index of Security Risk to tell us that failure to gain approval for alternate paths to market (and thus the ability to diversify markets) for Canada’s oil sands production looms large as a risk to Canada’s energy security and energy-economy in decades to come.

And diversified market access offers benefits beyond Canada’s borders: One lesson that comes out of the Chamber’s International Index is that free trade in energy and energy products reduces risk for everyone involved. Finally, as the Fraser report points out, other studies show the security of world oil reserves improved sharply after the discovery of Canada’s oil sands reserves.

The world’s energy centre-of-gravity is beginning to shift from the Middle East to North America, but that won’t continue if Canadian resources are locked up in Canada, as decisions like Northern Gateway threaten to do. It’s all well and good (and important) to discuss investment, jobs, revenues, and environmental protection when we’re discussing energy policy, but there are still broader factors to consider. The choices made today on Canadian energy policy will have direct impact on the future of Canada’s energy security, and global energy security as well.

Kenneth P. Green is the co-author of Risks to Canada’s Energy Security, available at http://www.fraserinstitute.org.

Article provided by Troy Media (www.troymedia.com).

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