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iPolitics
Fen Osler Hampson and Derek Burney
Tuesday, October 9, 2012

Canada needs a “made in Canada” not a “made in the USA” energy policy. It is not a national energy strategy we need, but actionable policies that encourage the development of new infrastructure in pipelines and refining capacity, diversify exports, and reduce price discounts at the border.

The simple fact of the matter is that we are losing big time with our exclusive reliance on exports to a market where cartel-like management reigns supreme. If we don’t act soon, the problem is going to get a whole lot worse and cost us even more than it is now.

As the only foreign purchaser of Canadian oil, the U.S. can dictate the price at which it buys our crude. There has long been a price differential in the price of North American and European crude blends. For the past two years, for example, the price of European Brent crude has traditionally been roughly 20-25 percent a barrel higher than West Texas intermediate (WTI), and the spread is even bigger for Western Canadian Select (WCS) crude which gets discounted even more heavily.

Earlier, the Canadian Imperial Bank of Commerce suggested we will take an $18 billion hit (or $50 million a day) this year alone in the discounted price the Americans pay for our oil. That’s huge and doesn’t reflect the loss of investment capital and jobs that come with lost revenues.

We sell at a discount to the U.S. refiners (“Advantage America”) while importing about 50 percent for Canadian consumers in Eastern Canada at world prices (“Disadvantage Canada”). This is not acceptable. The deep discount and the Keystone veto both undermine the integrated nature of the North American oil market. The government needs to rectify the imbalance.

We need policies that will help us diversify our exports and in the process strengthen our own hand in negotiating competitive energy prices with the Americans.

But that’s not the only problem we have. The United States is soon going to be able to fill more of its needs with the development of its own oil shale reserves.

Venezuela will also start developing its massive reserves in the Orinoco river basin even with Hugo Chavez’s Sunday win in the presidential election. This too will add to supplies as Venezuela seeks greater market share. With little prospect right now of exporting Canadian oil to other markets, particularly in the case of Albertan oil where production is also surging, a combination of limited pipeline and limited refinery capacity in the U.S. will bid down the price of Canadian crude even further, particularly since U.S. refineries have the ability to switch back and forth between heavy Canadian crude and other lighter varieties.

We’re all going to lose out unless the provinces and federal government pitch in and start working together to branch out to markets in Asia and Europe where there is strong and growing demand for Canadian energy — not just our oil, but also for natural gas.

We need policies that will help us diversify our exports and in the process strengthen our own hand in negotiating competitive energy prices with the Americans.

Developing infrastructure and our own refining capacity also means that we will be less affected by bottlenecks and severe weather south of the border. The Americans talk about energy independence, but Canada has the capacity for precisely that if we get our act together.

With his decision on Keystone, President Obama put in jeopardy the value of an integrated energy market. We would be wise as a nation to reduce our vulnerabilities across the board. Being land-locked as a supplier with flows only going north-south, we are unable to reap the full benefits of our own resources.

If we want the oil sands to be a national and not simply Albertan avenue for prosperity we need to tackle pragmatically the choices out there on infrastructure, upgrading, investment and trade policies that will serve the national interest.


About the Author

Fen Osler Hampson joined CIGI as distinguished fellow and director of the global security & politics program in July 2012, and oversees the research direction of the program.

The opinions expressed in this article/comments are those of the author(s) and do not necessarily reflect the views of CIGI or its Board of Directors and/or International Board of Governors.