Am I smarter than a fifth grader? I haven’t seen the TV show and do I want to know the answer? It could be embarrassing. I do know that it’s human nature to think that a person who agrees with our views is intelligent. If I’m wrong, then the person may be as dumb as I am. However, give me the benefit of the doubt on this one. A recent news item was brought to my attention about the lack of a Canadian energy policy which will impact on your energy security in the coming years.
On May 10th the House of Commons International trade committee imploded when Professor Gordon Laxer made a presentation suggesting that Canada’s energy security should be of primary concern instead of automatically exporting all new oil production to other countries. The subject under discussion by the committee was the Security and Prosperity Partnership (SPP), a White House initiative to harmonize and integrate the economies of North America to improve energy and security concerns. A major part of this initiative is the energy security concerns of the United States and increasing flows of gas and oil is part of the solution for American energy planners. The Professor believes that “North American energy security” really means “U.S energy security”.
The chairman of the committee, Leon Benoit, ruled the professor out of order and walked out trying to shut down the hearings. It becomes quickly evident that the supply of oil east of Sarnia is of little concern to the Harper government. With world oil production reaching its peak and a decline starting sometime in the next five years, can we expect to see a sequel of “Let the Easterners freeze in the dark?”
The good news is that the wealth of Canada will insure that we outbid other countries less fortunate and Eastern Canada will have enough oil for the short term until we adapt. The bad news is that it will be very expensive, possibly as high as $260 per barrel. Furnace oil will be at $3.20 per litre or close to $3000 for a tank of fuel to heat your home.
Canada imports 310 million barrels of oil annually into Eastern Canada. This means that $19 billion is flowing out of Eastern Canada consumers pockets to offshore oil producers to pay for oil (at $60/barrel).
In contrast, the money flowing into Western Canada from oil sales is $55 billion annually at current prices. Supposing that an initial price spike of 4 times existing levels would last for perhaps three months, then Eastern Canada would pay an extra $14 billion above and beyond the normal cost. Western Canada would receive an extra $40 billion from sales.
The already strained links in Canada between a wealthy Alberta and an impoverished eastern Canada hit by manufacturing shutdowns caused by a oil induced surging dollar will be broken as energy reaches absurd prices with no relation to cost of supply.
To avoid a total shutdown of the “other than oil economy”, Canada will have to move away from the market price of oil. However difficult this may seem from an ideological viewpoint to some, declining world oil production year after year leads to virtually continuous prices at levels that cannot be supported by the economic structure and individuals. The result of stratospheric prices is a global economic meltdown.
The Harper government is not entirely to blame for the present course of events. One can say that the Alberta government and the Harper administration have been tireless promoters of economic activity in the classical historical pattern where natural resources are used up at a rate that is not sustainable. To be fair, a previous government set the National Energy Board on its present “laissez faire” course? (More will follow on the NEB in a future column)
Over in Iraq, their government is being pressured to approve new oil laws that will allow production sharing agreements (PSA’s) with American and British oil companies. PSA’s are a method of oil field development that will turn over vast revenues and control of oil fields to the occupiers. Here in Canada, the government is promoting significant new exports of oil to feed the market south of the border. We must assume that Steven Harper and the Alberta government have not resisted the pressures from business and the US government.
The energy clauses in the NAFTA trade agreement that we have signed will force us to share any shortfalls in production. If we ship less to the United States then we have to accept proportionally less oil for Canada. Eastern Canada can’t expect any special oil deliveries from Western Canada in time of need.
How many conservative MP’s would it take to implement a new energy policy for Canada? Just one and his name is Steven Harper. The problem is that Steven Harper doesn’t buy into the decline of oil production. For an economist, supply and demand can solve anything.
Is Steven Harper smarter than a fifth grader? That’s not the right question. Is Steven Harper properly positioning Canada with an energy policy that puts us first? Will we end up paying dearly for this oversight?