When it comes to Canada’s burgeoning oil industry, the governing Conservatives have been happy to let free market forces run their course.
But a new report from an international consulting firm suggests that may not be enough. PricewaterhouseCoopers says the country’s oil industry is at risk of running out of available U.S. markets for its oil, and urges the country to develop a national energy policy.
“Canada’s capacity to produce oil is coming perilously close to surpassing our ability to transport that product to markets in the U.S.,” PwC’s Reynold Tetzlaff said in the report. “The industry needs to overcome a daunting list of challenges, namely how to manage all of its output.”
The U.S. may become less dependent on Canadian oil sands as a new boom in non-traditional oil extraction in the U.S. takes hold, the report said. The U.S. has seen large growth in shale oil and hydraulic fracking extraction in recent years.
At the same time, Canada’s oil production is forecast to grow to 4.5 million barrels per day no later than 2020, the report said, up from 2.8 billion barrels last year.
But as production increases, getting the oil to the market grows harder. Without infrastructure to carry it overseas, Canadian oil supplies have built up into a glut that has reduced its price. It recently traded at $30 per barrel below the price of Brent crude, the international standard for oil prices.
“Canadian producers … are looking to the federal and provincial governments for policy leadership on the markets front, and are pushing for creation of a national energy strategy that would clearly outline Canada’s future energy marketing goals and strategies to achieve those objectives,” the PwC report states.
PwC’s Tetzlaff explained that a national energy strategy “is one means that could be used to outline Canada’s future energy marketing goals and strategies to achieve those objectives. Any strategy undertaken will need to align provincial interests between Alberta, Ontario, Quebec and B.C., oil sands exporters, the private sector and other stakeholders including First Nations groups.”
Currently, oil companies are working on a patchwork of infrastructure to get Canadian oil moving, including the Keystone XL pipeline to the U.S. Gulf Coast that has been held up by the objections of environmentalists, and the Northern Gateway pipeline to the west coast of British Columbia. That project, which would deliver oil to Asian markets, is facing serious opposition from First Nations groups and B.C. communities. Kinder Morgan's plan to expand its Trans Mountain Edmonton-to-Vancouver pipeline faces similar problems.
Developing a national energy strategy is easier said than done. For one, it’s not clear what would be part of it. PwC recommends that First Nations groups and other citizen stakeholders be part of the strategy, but recent moves by the federal government suggest it wants to see less input overall from the public into the development of pipelines.
And when recently-elected Alberta Premier Alison Redford said earlier this year that she would like to see a national energy strategy, Harper joked that he “always gets nervous” when he hears the words “national” and “energy” in the same sentence.
Presumably, that’s in reference to the long-lasting legacy of Prime Minister Pierre Trudeau’s National Energy Program, a system of price controls introduced in 1980 that reduced energy costs for consumers but whose damage to the oil industry alienated Western Canada, particularly Alberta.
Though Harper was joking in response to Redford’s comments, he also reflected the nervousness many Western Canadians feel at the idea of letting Ottawa once again take control of energy policy.
And not everyone thinks “national” means the federal government should be involved. Quebec Premier Jean Charest said in January he would support Redford’s idea for a national energy strategy -- so long as the provinces alone negotiated it, and the federal government was kept on the sidelines.
WHAT'S BEHIND THE PRICE OF GAS?
1. Crude Oil Prices
It starts with crude oil. Although Canada may produce more oil than it consumes, the country is at the mercy of global markets for the commodity. Increased Middle East instability, sparked by popular uprisings, has lead to concerns about supply. Better-than-expected economic growth, especially in developing nations such as China and India, has also increased demand. (AP Photo/Hasan Jamali)
2. Refining Oil into Gas
The next link in the supply chain is refining. In order to turn thick, black crude oil into useful products such as gasoline, diesel, heating oil and jet fuel, it must be sent through a mind-boggling array of pipes and tanks, heaters and condensers to sort the components of the substance from lightest to heaviest. This is a complex and costly process, and is paid for by what is known as the "crack spread," or refining margin. This represents the difference between prices fetched for the products produced, and the cost of crude oil inputs.. (AP File Photo)
3. Transportation to Retailers
Once the oil has been refined into gasoline, it must be transported to retail outlets across the country. This is accomplished through a network of 23 terminals - from St. John's to Nanaimo, B.C. -- forming the backbone of the distribution network. (AP Photo/Jessica Hill)
4. Retail Mark-Up
The retail mark-up averaged 7.6 cents per litre in April. This national average masks wide variation, from lows of 4.6 cents in Calgary up to highs of 25.8 cents in Whitehorse, according to Kent Marketing Services, an industry consulting group. (AP Photo/Orlin Wagner)
5.Taxes at the Pump
Emily Corbett of Mechanicville, N.Y., pump gas at a station in Mechanicville, on Wednesday, May 11, 2011. New York, Indiana, Illinois and New Hampshire are among the first states talking about temporarily suspending part or all of the state and local taxes that can add 14 cents to nearly 50 cents to a gallon of gas. (AP Photo/Mike Groll)