Canada is addicted to foreign oil
The country is over-regulating domestic producers, say Ron Wallace and Jack Mintz.
Perhaps easy to miss amid the understandable political uproar over Canadian pipelines (or perhaps more appropriately, our apparent inability to build them) was the Statistics Canada Monthly Merchandise Trade Report in February that tracks Canada’s international balance of trade.
The report indicated Canada’s trade deficit amounted to $2.7 billion, which widened from $1.9 billion from the prior month, with imports advancing 1.9 per cent month-over-month, mostly due to higher purchases of energy products.
Hidden within those summary numbers was the revelation that imports of energy products into Canada advanced by a material 15.4 per cent to $3.4 billion, the highest level since November 2014, with the largest share of those imports originating from the U.S. The importation of crude oil and bitumen advanced 15.4 per cent, with imported refined petroleum products up by 24.1 per cent, the latter due largely to increased imports of gasoline into British Columbia.
Canada’s increased importation of oil and its products reflects a growing trend in the past two years. In December 2015, the U.S. Congress ended a 40-year ban on oil exports.
Accompanied by surging U.S. production, crude oil exports from the U.S. to Canada (seasonally adjusted), have risen from $6.4 billion from September 2015 to February 2016, to $8.4 billion from September 2017 to February of this year, or by about a third.
While these numbers fluctuate monthly, the point is that in February, while Canada exported $8.8 billion in energy, it also imported $3.38 billion from international sources which, according to Statistics Canada, represents a year-to-year increase of 12.3 per cent.
Canada produces far more oil than it can consume, and hence it is the world’s fourth largest producer and third largest exporter of oil. In 2016, Canada was the largest foreign supplier of crude oil to the U.S., with 99 per cent of our oil exports directed there.
Canada accounted for 41 per cent of total U.S. crude oil imports and 20 per cent of U.S. refinery crude oil intake. However, Natural Resources Canada also indicated that in 2016, Canada imported crude oil and equivalents from many countries, including the United States (62 per cent), Saudi Arabia, Algeria, Nigeria and Norway.
At a time when Canadian attentions, both public and political, are riveted on our pernicious lack of pipeline access to international oil markets, we question why so little attention is being paid to
Canada’s increasing importation of petroleum products.
It cost Canadians $3.4 billion in February alone. To be clear, we are not arguing that a trade surplus or deficit is an appropriate barometer of a country’s health. However, we do suggest that growing U.S. exports, due to deregulation, and our inability to build infrastructure to export our energy, is not beneficial.
Canada could enhance its security of supply, reduce its trade deficit and produce fewer global greenhouse gas emissions if we used more of our Canadian crude oil production. A recent study by the Canadian Energy Research Institute, using 2016 data, indicates that substituting Canadian oil wherever possible using space on existing pipelines, railcars and ocean tankers, could reduce foreign oil imports into Eastern Canada by a whopping 47 per cent.
This would save refineries $210 million and reduce Canadian emissions of carbon dioxide by the equivalent of more than two million tonnes, or about 5.7 per cent annually.
The institute also found that eastern Canadian refineries process just over one million barrels
of oil per day, of which only 39 per cent originates from Western Canada and five per cent originates from the eastern Canadian offshore; fully 56 per cent is imported from the United States (amounting to 260,000 barrels of imported oil per day).
Clearly, lower regulatory and fiscal costs would benefit all Canadians. Hence, we urgently need better policies to resolve our pipeline infrastructure problems.
While a precarious B.C. government opposes oil pipelines, the Trudeau government’s avowed transition away from fossil fuels appears to be directed solely at penalizing Canadian producers.
Canada is over-regulating domestic producers with misdirected policies that allow foreign petroleum imports — unimpeded by Canadian environmental laws, so-called social license, greenhouse gas reduction strategies and associated taxes — to flood into Canada to displace jobs and discourage investment.