Canada Needs its Oil and Natural Gas Industry More than Ever

Gwyn Morgan
May 7, 2020
You don’t see news media reporting that Germany has declared Audi and BMW to be obsolete companies from yesteryear. Nor that Switzerland has come to regard its banking sector and watchmakers as sunset industries. There’s been no announcement that South Korea is shuttering Samsung. Nor that the Greeks are tearing over hill and dale torching their olive and orange groves. Everywhere you look, countries are leaning on their proven economic strengths to power their post-Covid comeback. So why is Canada’s federal government, seemingly alone in the world, intent on euthanizing this nation’s number-one source of export earnings and inter-regional tax transfers – the oil and natural gas sector? Gwyn Morgan moves briskly through the recent madness and declares that this is one instance of ideological folly the country simply can’t afford.

Canada Needs its Oil and Natural Gas Industry More than Ever

Gwyn Morgan
May 7, 2020
You don’t see news media reporting that Germany has declared Audi and BMW to be obsolete companies from yesteryear. Nor that Switzerland has come to regard its banking sector and watchmakers as sunset industries. There’s been no announcement that South Korea is shuttering Samsung. Nor that the Greeks are tearing over hill and dale torching their olive and orange groves. Everywhere you look, countries are leaning on their proven economic strengths to power their post-Covid comeback. So why is Canada’s federal government, seemingly alone in the world, intent on euthanizing this nation’s number-one source of export earnings and inter-regional tax transfers – the oil and natural gas sector? Gwyn Morgan moves briskly through the recent madness and declares that this is one instance of ideological folly the country simply can’t afford.
Share on facebook
Share on Facebook
Share on twitter
Share on Twitter

Albertans are living in year five of a nightmare that just keeps getting worse. That nightmare started in 2015 when our newly elected Prime Minster appointed Gerald Butts, head of the Canadian arm of the anti-fossil-fuel World Wildlife Fund, as his Principal Secretary and key advisor. A year later, Justin Trudeau cancelled the previously approved Northern Gateway Pipeline that was to run from central Alberta to the B.C. port of Prince Rupert. Then in early 2017, Trudeau made his infamous visit to Alberta where he advocated the “phase out of the oilsands”. Later that same year came the demise of the Energy East Pipeline that needed to transit Quebec on its route from the Prairies to the New Brunswick port of Saint John when, after the regulatory hearing and consultation process had been completed, Trudeau acceded to Quebec’s objections by inserting new, deliberately impossible conditions.

Orphaned industry: The Liberal government seems only too happy to accede to the anti-energy agenda of groups like these.

With no access to tidewater and global markets, Canadian crude oil exporters were left hostage to American oil refiners, driving down the pricing received by our producers in a phenomenon known as a “captive market discount”. At times, this foregone revenue totalled as high as $2 billion per month. Had the cancelled pipelines been built, those lost tens of billions of dollars, net of government royalties and taxes, would have put the industry in a vastly stronger position. Instead, most companies were already on the edge of a financial precipice when the Covid-19 crisis slashed world oil demand by an unprecedented amount. Their only hope was government aid. But this prospect was vehemently opposed by the anti-fossil-fuel groups, most of whom make their living off the public purse.

On March 25, a collection of 108 groups comprising public service unions, environmentalists including the Sierra Club  and Greenpeace along with civil disobedience advocates Extinction Rebellion, Climate Justice and Climate Strike, sent a letter to the Prime Minister, stating: “Giving billions of dollars to failing oil and gas companies…only prolongs reliance on fossil fuels”. Then came another letter from 265 Canadian university professors arguing the industry should be left to die, with the public assistance funds instead going to green energy development. (Speaking of green energy, Planet of the Humans, a powerful new documentary produced by erstwhile environmentalists’ hero Michael Moore, is a myth-buster that’s shaking the green energy establishment to its roots.)

Those letter-writers may have gotten their way. On April 17, Trudeau announced “assistance” to the energy sector that focused on the final cleanup and abandonment of no-longer-producing (or “orphaned”) oil and natural gas wells. An important program, to be sure, but hardly central to saving the oil and natural gas industry from the twin-devastation of collapsing world oil markets and a deep economic recession. It was largely optics, in other words; our “woke” prime minister was trying to have it both ways. And indeed, three days before, Alberta oil prices had gone below zero, pushing many companies off the precipice.

But when help came, it was both modest and selective. The Business Development Bank of Canada announced $15 million to $60 million in one-year loans at “full commercial interest rates” for qualifying small and medium-sized companies. While providing a temporary reprieve for some, it’s hard to think of a more modest measure for an industry employing half-a-million people facing existential crisis. By comparison, in the 2009 Ontario auto industry crisis, the federal government injected $20 billion (in 2020 dollars), without repayment requirements, to save just 22,000 jobs. 

Some people get it: Alberta Energy Minister Sonya Savage last year promoting the energy sector’s national benefits (above) and Pro-energy-industry demonstrators in Brandon, Manitoba (below).
Some people get it: Alberta Energy Minister Sonya Savage last year promoting the energy sector’s national benefits (above) and Pro-energy-industry demonstrators in Brandon, Manitoba (below).
Some people get it: Alberta Energy Minister Sonya Savage last year promoting the energy sector’s national benefits (above) and Pro-energy-industry demonstrators in Brandon, Manitoba (below).

This is not just an Alberta and Saskatchewan problem. The oil and natural gas industry has long been the very engine of Canada’s economy. From 2014-2018, it contributed over $100 billion to our annual GDP, including tens of billions of dollars in direct payments to governments, plus income taxes paid by the industry’s employees. The industry’s average capital spending of $40 billion per year included sourcing manufactured equipment across the country, spreading jobs and wealth from coast to coast. Moreover, Alberta has long been the largest net contributor to federal revenues. A recent Fraser Institute study found that from 2014 to 2018 Alberta’s net contribution to Ottawa was $94 billion, $36 billion more than Ontario, a province with a population three times as large.

Even in 2019, despite relatively weak commodity prices further lowered by captive-market discounts, oil and natural gas and its derivatives made up five of Canada’s top-ten net (exports minus imports) exports, at US$115 billion. And here is a dramatic illustration of Canada’s dependency on our bountiful resource endowment. Of Canada’s top-ten net exports, seven were natural resources and the other three agricultural. Vehicles aren’t among the top-ten net exports because we import more than we export.

Price-war pals of convenience: Saudi Arabia’s Crown Prince Mohammed Bin Salman and Russian strongman Vladimir Putin.

Korea’s economy has already bounced back from Covid-19 because it’s a manufacturing powerhouse. Countries need to play to their strengths. The last thing they should do in a crisis – or ever, for that matter – is trash the industry or industries that form the basis of their prosperity. For Canada, the answer couldn’t be clearer. Our recovery will depend on government policies that actively encourage, rather than impede, resource investment.

Over the past few years, production growth from U.S. oil shales and Canadian oil sands has substantially reduced the Saudi Arabian and Russian shares of global oil markets. To say this has caused consternation in those two oil-dependent countries would be a severe understatement. Russia, especially, is almost obsessed with undermining the Americans’ energy advantage. The Covid-19-driven collapse in crude oil demand handed Soviet strongman Vladimir Putin and Saudi Crown Prince Mohammed Bin Salman a perfect opportunity to achieve their longstanding goal of crippling the U.S. and Canadian industries by driving down prices. 

Petro-currency: The Canadian dollar’s correlation to crude oil.

If the current situation persists, it would be a significant blow to the U.S., but America’s world-leading industrial diversification would carry it through. Low energy prices are helpful to that country’s immense manufacturing, transportation and consumer sectors, offsetting the damage to industries that benefit from higher energy prices.

By contrast, resource-dependent Canada would lose its most economically important industry. (The fact that our currency fluctuates along with crude oil and natural gas prices rather than, say, indexes of manufacturing industry health, illustrates how the world sees us – even if our Prime Minister, the Liberals and Canada’s other left-wing parties don’t.) And the country’s most important resource-producing province would move from Canada’s biggest net economic contributor to the most impoverished. Newfoundland, already in desperate financial straits, would be devastated, Saskatchewan would be severely damaged, and B.C. would feel the effects as well. 

Energy fortress North America? Alberta Premier Jason Kenney meets in Washington in February with U.S. Secretary of Energy Dan Brouillette.

The Covid-19 experience also teaches us the folly of depending on other countries for critical supplies. Energy is the most important of those. The Energy East pipeline cancellation has left Quebec and the Atlantic provinces dependent on oil now supplied mainly by guess who…Saudi Arabia. With a dose of political will and a modicum of vision the project could be fast-tracked, however, as it mostly involves converting an existing natural gas pipeline to crude oil service.

Nor are North American policymakers completely helpless on the pricing front. As long as North America produced far less crude oil than it consumed, we had no direct or short-term ability to influence global energy prices. That has all changed thanks to the dramatic increase in U.S. and Canadian oil production over the past decade. Canada should immediately engage the U.S. administration to set a viable minimum North American benchmark oil price and phase-in a ban on offshore imports. There is no time to lose. Every day that goes by sees the industry most important to restoring the health of our government finances weaken further. And any hope that Albertans have of waking from their tragic, more than five-year-long nightmare further diminishes.                               

Gwyn Morgan is the retired founding CEO of Encana Corp.

Love C2C Journal? Here's how you can help us grow.

More for you

The Economics of Green Energy Ideology

Solar panels filling fields in cloudy northern countries. Wind turbines manufactured for export by the world’s largest builder of coal-fired power and worst emitter of greenhouse gases. Governments deliberately demolishing their country’s most valuable industry. It is increasingly clear that so-called green energy isn’t just another instance of youthful idealism going a little too far, much less a practical way to a clean future, but a nasty utopian ideology bent on impoverishing entire countries. Gwyn Morgan examines a slice of this destructive landscape and warns of the severe risk to Canada’s economic well-being.

“The Truth as I See It” – In Conversation with Frances Widdowson

In our Unbrave New World, most of us would prefer to keep our heads down or repeat empty slogans rather than face censure from the mob. Against this backdrop of timid conformity, a few determined individuals stand out for the fearlessness and gusto with which they speak their minds. Professor Frances Widdowson of Calgary’s Mount Royal University is among that handful. In a lengthy interview with Peter Shawn Taylor covering a range of important subjects, Widdowson defends her controversial stances, explains the necessity of difficult discussions and reveals how hard it can be to remain rational in these increasingly irrational times.

Judicial Activism Advances Dysfunctional Federalism

It is one sign of the remorseless march of the administrative state that appeals to Canada’s Constitution appear almost quaint, as well as typically toothless. The news media often frame provincial objections to federal encroachments as claims or perceptions rather than testable assertions, as if Canada’s constitutional documents comprise long-lost secret scrolls written in a dead language. It has been Canada’s judges, however, who have most decisively tipped the balance in favour of federal supremacy in more and more areas. No case has proved too small to keep the process rolling. Not even, as Grant A. Brown reports, a dispute over a simple Ontario government sticker that even the judge had to concede was factually accurate.

More from this author

The Economics of Green Energy Ideology

Solar panels filling fields in cloudy northern countries. Wind turbines manufactured for export by the world’s largest builder of coal-fired power and worst emitter of greenhouse gases. Governments deliberately demolishing their country’s most valuable industry. It is increasingly clear that so-called green energy isn’t just another instance of youthful idealism going a little too far, much less a practical way to a clean future, but a nasty utopian ideology bent on impoverishing entire countries. Gwyn Morgan examines a slice of this destructive landscape and warns of the severe risk to Canada’s economic well-being.

The future of Alberta, and Canada for that matter, is at the brink. Can we walk it back?

Stepping Back from the Brink – Maybe

“You don’t know what you’ve got ’till it’s gone” was penned long ago as an environmentalist, anti-establishment lament. These days, the environmentalists are the establishment, industry is the underdog, and the federal Liberals have come close to destroying the nation’s foremost generator of wealth and tax revenues. Some recent pronouncements by certain federal ministers, however, have Gwyn Morgan seeing glimmerings of reason, or at least pragmatism. If they do suspend their scorched-earth campaign against oil and gas, though, it won’t be for any love of the resource sector, let alone of Alberta. It will simply be because they need the money desperately. If that’s what it takes, writes Morgan, so be it.

Will WE be the same after this Trudeau ethics scandal?

The Biggest Question Mark in Trudeau’s Latest Ethics Scandal

We are now onto Prime Minister Justin Trudeau’s third official ethics imbroglio. Mr. “blind spot”, as a previous ethics commissioner termed him, is back at it, once more trailing cabinet ministers and political flunkies. The blind leading the blind, as it were. This time around it’s a close to billion-dollar sweetheart deal offered to WE Charity – an organization with close ties to Trudeau and cabinet ministers. As the Opposition and media focus on the mechanics and legalities of the growing scandal, Gwyn Morgan probes the deeper question of why anyone would think shovelling vast sums into yet another summer jobs program for students was a good idea. The possible answer is downright diabolical.

Share This Story

Share on facebook
Share on twitter
Share on print

Donate

Subscribe to the C2C Weekly
It's Free!

* indicates required
Interests
By providing your email you consent to receive news and updates from C2C Journal. You may unsubscribe at any time.