National Post (National Edition)
Why we spend billions on Saudi Arabian oil
Complex factors at work in energy policy
As Saudi Arabia severs ties with Canada, the two countries’ trade relationship hangs in the balance. On one hand, Canada will lose out on Saudi foreign students, military contracts and sales of wheat and grain. On the other, Saudi Arabia will lose the billions of dollars it earns every year by selling oil to Canada.
For years, it has been an oft-repeated Alberta grievance that these imports exist at all. Despite sitting atop an ocean of oil reserves, Canada continues to spend a small fortune every year buying oil from a country that executes homosexuals, flogs dissidents and has a nasty habit of funding Islamic extremism.
Below, a quick guide to why Canadians are still gassing up their cars with Saudi crude.
OVER THE PAST 10 YEARS, CANADA HAS SPENT $20.9 BILLION ON SAUDI CRUDE
Between 2007 and 2017, Statistics Canada figures show that Canada imported $20.9 billion of Saudi Arabian petroleum oils. For context, this is almost precisely what Canada spends on its military per year. It’s also way more than the expected $15.7 billion cost of the Energy East pipeline. On average, in recent years, Saudi Arabia supplies about 10 per cent of Canada’s oil imports. Canada, in turn, is responsible for buying roughly 1.5 per cent of total Saudi oil exports. What’s more, Saudi Arabia is climbing the leaderboard of countries that Canada relies upon for its foreign oil. As recently as 2010, Saudi Arabia ranked as Canada’s fifth largest supplier of foreign oil (behind Algeria, Norway, the U.K. and Kazakhstan). Now, Saudi Arabia is second only to the United States.
RIGHT NOW, ALL THE SAUDI OIL IS COMING THROUGH A SINGLE NEW BRUNSWICK REFINERY
All of the Saudi oil imported into Canada in 2017 and 2018 came through New Brunswick, which only has one oil import facility: the massive Irving Oil-owned Saint John refinery. Between January and June of this year that refinery has imported $1.8 billion of Saudi oil — roughly $10 million per day. The amount of U.S. oil entering the refinery, for comparison, is equivalent only to about $3.8 million per day. Unlike most Canadian refineries, Saint John has no access to a pipeline; every barrel of oil it processes either comes by tanker or train. (The oil train that caused the Lac-mégantic rail disaster, in fact, was headed to the Saint John refinery). “We source crude oil from all over the world for our refinery in Saint John, N.B.,” a spokesman for Irving Oil told the National Post in 2016. And whenever someone is seeking out the cheapest product from the world market, it’s not unusual that a lot of it is going to come from oil-rich Saudi Arabia.
ALBERTA AND SAUDI OIL AREN’T NECESSARILY THE SAME THING
On paper, Canada could become energy self-sufficient tomorrow. Every day we produce about 3.9 million barrels of oil per day, and use less than two million barrels. A study this year from the Canadian Energy Research Institute even calculated that energy self-sufficiency might reduce emissions. But think of oil like whisky: There are many different types and qualities. Alberta oil is not interchangeable with the stuff coming out of Saudi Arabia. Andrew Leach, an energy economist at the University of Alberta, said comparing the two is like comparing apples and oranges. “Saudi crude and WCS (Western Canadian Select) doesn’t overlap much in terms of their markets,” he said. For one thing, most eastern Canadian refineries cannot process bitumen, the thick, tarlike hydrocarbon that comes out of the Athabasca oilsands. Almost anybody can process Saudi Arabian crude, but only an elite fraternity of the world’s most complex refineries can turn Alberta bitumen into gasoline. To get to the East Coast, Canadian bitumen also has to be shipped 4,000 kilometres overland, significantly adding to its costs (Saudi Arabia is 10,000 kilometres away from the Canadian East Coast, but tanker shipment is cheap). It’s also why Western Canadian Select, the industry name for most oilsands bitumen, sells at such a steep discount to more conventional oil types coming out of Saudi Arabia. In June, for instance, WCS sold at an average of USD$52.10 a barrel compared with USD$67.87 for West Texas Intermediate (WTI), an oil category priced similarly to most Middle Eastern oils.
EVEN WITH A PIPELINE, IT’S NOT A GUARANTEE THAT REFINERIES WOULD BUY CANADIAN
The cancelled Energy East pipeline, of course, would have pumped Saskatchewan and Alberta petroleum into New Brunswick. Politicians touted the pipeline as a way to supplant foreign suppliers such as Saudi Arabia. “We believe this nation-building project would have benefited all of Canada through new jobs, investment, energy security and the ability to displace oil being imported into Canada from overseas,” Alberta Premier Rachel Notley said upon the project’s cancellation. However, refineries are no different than a driver cruising gas stations looking for a fill-up: They seek out whoever has the best price and buy accordingly. If Alberta can’t sell its oil on the Atlantic coast for a lower price than Saudi Arabia, refineries aren’t going to buy it — particularly if they can’t process it.
“Getting product from Western Canada, while conceptually sounding like a good way to push out Saudi oil, doesn’t fix everything,” said Jason Parent with the Canadian oil industry analyst Kent Group.
As of press time, WCS was selling at a $30 discount over more conventional oil types. While this would likely be enough to entice Atlantic buyers, the discount isn’t always so competitive — particularly if Saudi Arabia is actively trying to overproduce and drop oil prices in order to kneecap the Canadian and U.S. oil industry. This is part of the reason why Canada never built a pipeline to the East Coast. “Eastern provinces did the math and found it cheaper to import foreign oil by tanker, rather than bother with the extra cost of domestic supply,” said Peter Tertzakian, director of the Calgary-based Arc Energy Research Institute. However, even if the business case is a little complicated, Tertzakian still advocates a pipeline as something Canada should do for strategic reasons. “We could be completely self sufficient if we wanted,” he said. “It’s just a question of how much we are willing to pay for it.”