In Too Deep: Canada’s Overreliance on Oil

On July 6, an unmanned freight train carrying 72 cars filled with crude oil spun off its tracks and crashed into the center of the small Quebec town of Lac-Megantic. The tragic accident raised serious questions regarding Canada’s dependence on oil. While the tragic train derailment, which killed 47 people and destroyed a large portion of the town, highlighted the alarming safety concerns regarding oil transportation, it also brought the larger economic and political issues of oil back to the national conscience. As Canada mourns the loss of human life that resulted from the tragedy, it must now face growing economic concerns of overdependence on a raw material that not only weakens the nation’s economy, but also reduces its autonomy from the United States.

Oil: Too Profitable to Resist

Canada is one of the most oil-rich nations in the world, second only to Saudi Arabia in its amount of proven oil reserves. [1] Most of Canada’s oil comes from oil sands, which consist of a dense mixture of clay, sand, water, and bitumen (a heavy, unrefined oil). [2] The oil is extracted from the sands either through surface mining or drilling, and both methods involve intense processing in order to extract the bitumen from the surrounding sand. [3] There is much debate over whether the oil sands are more or less environmentally damaging than conventional oil extraction methods, such as deep water drilling, but oil sand proponents in the oil industry argue that this method generates carbon footprints similar to other types of crude oil mining. However, recent studies by the Alberta-based environmental consultancy and advocacy group, Pembina Institute, show that sands emit between 8 and 37 percent more greenhouse gases than does conventional crude oil, and also require immense quantities of water in order to reach the bitumen. [4] Despite oil companies’ attempts to convince the public otherwise, oil sands are in fact one of the dirtiest forms of raw energy available.

The western province of Alberta holds an estimated 300 billion barrels of extractable oil, and has seen a sharp increase in production over the past decade. [5] Alberta’s oil industry is expected to expand even further. The Canadian Association of Petroleum Producers predicts that oil production will more than double by 2030, rising from the current production rate of 3.2 million barrels per day to 6.7 million barrels per day. [6] Today, natural resources account for roughly 20 percent of Canada’s GDP, generating 1.6 million jobs in the sector. [7] As oil takes up an increasingly large portion of Canada’s economy, other sectors do not develop at the same pace and the Canadian economy fails to diversify. In other words, Canada’s markets are shifting away from manufacturing and other industries that promote the creation of domestic jobs as its reliance on its domestic raw materials increases. A February report released by the Canadian Centre for Policy Alternatives and the Polaris Institute found that this emphasis on primary product extraction may create a “staples trap,” or a reliance on commodities like oil that perpetuates a dependency on foreign markets and undermines long-term economic development. [8] While focusing on oil extraction may prove beneficial to Canada’s economy in the short-run, the trend makes Canada increasingly vulnerable to fluctuations in the world market.

The United States and Canada

When a country relies so heavily on an primary product, it is very vulnerable to price fluctuations set by shifts in supply and demand of the foreign nations that buy its product. In Canada’s case, such decisions are made by Canada’s largest customer: the United States. The United States imports nearly three million barrels of Canadian crude oil per day, roughly 99 percent of Canada’s oil exports. [9] For over five years, Canadian oil companies have been pushing to build a 2,000-mile pipeline from the Alberta sands to the Texas Gulf, known as the Keystone XL project. [10] Keystone has been a hot topic in both countries since its proposal in 2008. Meanwhile, environmentalist groups have been demanding that the whole project be abandoned while business interests want the approval process to move forward as rapidly as possible. Last year, David L. Goldwyn, coordinator for international energy affairs at the State Department, stated, “It is undeniable that having a large supply of crude oil available by pipeline from a friendly neighbor is extremely valuable to the energy security of the United States.” [11] However, many Canadian politicians and business leaders fear that President Barack Obama’s capricious green sympathies will prevent him from agreeing to the construction of the pipeline. Although Canada may be a better alternative to less amiable countries such as Saudi Arabia or Iraq, the question remains as to whether or not the United States should abandon oil altogether and instead pursue alternative fuel sources. A serious step in the direction of green energy on Obama’s part could eventually cause big trouble for Canada’s economy.

At a forum on June 18 in Washington, Canadian Ambassador to the United States Gary Doer asserted that oil would continue to flow to the United States, regardless of whether or not Keystone is built: “It will get to market by trains. It will get there by trucks.” [12] However, after the Lac-Megantic incident, many Canadians better understand the dangers of oil transport and now oppose using trains as a form of oil transportation, because of safety issues. Whether train car explosions are inherently more or less damaging than pipeline spills is hard to determine, but it is safe to assume that both means of transport carry significant safety risks. Doer also claimed that Canada benefits from other trade partners, arguing that: “[The oil] will get to India, it will get to China and it will continue to go to U.S. refineries…” [13] Canada clearly does not want to project the image of being solely dependent on the United States for its vital oil revenue, even if this is its current reality.

The Power of Obama’s Word

Obama has wavered over approving the pipeline on numerous occasions, torn between the security of a steady supply of oil and his personal reluctance to go back on campaign promises of a move towards renewable energies. His most recent comment on the issue was on June 25 during a speech on climate change at Georgetown University. On that occasion, he stated that “allowing the Keystone pipeline to be built requires a finding that doing so would be in our nation’s interest. And our national interest will be served only if this project does not significantly exacerbate the problem of carbon pollution.” [14] The comment, which marked the first time that Obama had directly spoken about Keystone in months, did not indicate a clear stance on the issue, but nevertheless led both sides to optimistically claim victory immediately. Environmentalists viewed the remarks as an indication that Keystone is doomed to be disapproved, while advocates of the pipeline believed that Obama was suggesting that he would eventually agree to the project. [15] Canadians in particular reacted very strongly to Obama’s statement. Later that day, Canadian Natural Resources Minister Joe Oliver announced, “Today President Obama made clear that Keystone XL would be approved if it does not significantly exacerbate the problem of greenhouse gas emissions.” [16] Oliver went on to refer to a recent State Department report, which found that the pipeline would not seriously impact emission levels. [17] Overall, Oliver seemed very confident that approval was imminent: “If you look at the facts and the science, we’re comfortable the project will be approved.” [18] Oliver’s excitement notwithstanding, it remains far from clear what Obama will ultimately decide; he is not expected to reveal his verdict until later this year.

Conclusion

In the meantime, Canada would be wise to focus on reducing its dependence on both oil as a commodity and the various markets of the United States. In a March 31 New York Times op-ed, Thomas Homer-Dixon, a Canadian author and professor, correctly observed that “if President Obama blocks the Keystone XL pipeline once and for all, he’ll do Canada a favor.” [19] Canada’s addiction to oil is not only hazardous and destructive to the infrastructure and lives of its citizens, as demonstrated by the tragic aftermath of the Quebec train explosion, but also harmful to the country’s safety as well as its long-term economic wellbeing and independence.

 Jennifer Bisgaier, Research Associate at the Council on Hemispheric Affairs

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References

[1] “Canada’s Oil Sands Contain World’s Second Largest Proven Oil Reserves.” Financial Times, May 7, 2013. http://business.financialpost.com/2013/05/07/deloitte-insight-economic-diversity-key-to-canadas-future/canadas-oil-sands-contain-worlds-second-largest-proven-oil-reserves/  (accessed July 19, 2013).

[2] Alberta Energy, “What is Oil Sands?.” Accessed August 7, 2013. http://www.energy.alberta.ca/OilSands/793.asp .

[3] “How oil is extracted from Alberta’s oil sands.” The Seattle Times, September 14, 2010. http://seattletimes.com/flatpages/businesstechnology/albertasoilsands.html (accessed August 7, 2013).

[4] Cryderman, Kelly. “Alberta’s oil sands crude: the science behind the debate.” The Globe and Mail, May 9, 2013. http://www.theglobeandmail.com/report-on-business/industry-news/energy-and-resources/albertas-oil-sands-crude-the-science-behind-the-debate/article11837683/ (accessed August 7, 2013).

[5] Trimarchi, Maria. How Stuff Works, “What are oil sands?.” Accessed August 7, 2013. http://science.howstuffworks.com/environmental/green-science/oil-sands.htm.

[6] “Canada’s oil output to more than double by 2030.” CBC News, June 5, 2013. http://www.cbc.ca/news/canada/story/2013/06/05/business-oil-production-increase.html (accessed August 7, 2013).

[7] Graeber, Daniel. “Has Canada bet too much on oil?.” The Christian Science Monitor, May 28, 2013. http://www.csmonitor.com/Environment/Energy-Voices/2013/0528/Has-Canada-bet-too-much-on-oil (accessed August 7, 2013).

[8] Jamasmie, Cecilia. mining.com, “Reliance on oil sands may hurt Canada’s economy: report.” Last modified February 21, 2013. Accessed August 7, 2013. http://www.mining.com/reliance-on-oil-sands-may-hurt-canadas-economy-report-91626/.

[9] King, Carolyn. “Latest U.S. Govt Data Shows Canadian Oil Exports to U.S. Rising.” The Wall Street Journal, April 29, 2013.

[10] EcoSeed, “UPDATED: Proposed Keystone XL pipeline fails Obama’s climate test- N.R.D.C. analysis.” Last modified July 25, 2013. Accessed August 7, 2013. http://www.ecoseed.org/politics/16810-updated-proposed-keystone-xl-pipeline-fails-obama-s-climate-test-n-r-d-c-analysis.

[11] Krauss, Clifford, and Elisabeth Rosenthal. “Reliance on Oil Sands Grows Despite Environmental Risks.” The New York Times, May 18, 2013. http://www.nytimes.com/2010/05/19/business/energy-environment/19sands.html?pagewanted=all&_r=3& (accessed August 7, 2013).

[12] “Envoy: Keystone won’t make or break Canada.” United Press International, June 21, 2013. http://www.upi.com/Business_News/Energy-Resources/2013/06/21/Envoy-Keystone-wont-make-or-break-Canada/UPI-50201371810887/ (accessed August 7, 2013).

[13] Ibid.

[14] Jackson, David. “Obama’s Keystone comments subject to interpretation.” USA Today, June 26, 2013. http://www.usatoday.com/story/theoval/2013/06/26/obama-keystone-oil-pipeline-climate-change-speech/2459127/ (accessed August 7, 2013).

[15] Ibid.

[16] Koring, Paul, and Steven Chase. “Canada seizes on Obama’s Keystone XL pipeline requirements.” The Globe and Mail, June 25, 2013. http://www.theglobeandmail.com/report-on-business/industry-news/energy-and-resources/obama-climate-speech/article12799330/ (accessed August 7, 2013).

[17] Ibid.

[18]”Keystone pipeline supporters and foes read Obama’s climate-change speech differently.” canada.com, June 25, 2013. http://www.canada.com/Keystone pipeline supporters foes read Obama climate change speech differently/8577002/story.html (accessed August 7, 2013).

[19] Homer-Dixon, Thomas. “The Tar Sands Disaster.” The New York Times, March 31, 2013. http://www.nytimes.com/2013/04/01/opinion/the-tar-sands-disaster.html?_r=2& (accessed August 7, 2013).