Energy security in the land of the energy superpower

According to the International Energy Agency, by 2030, the world’s demand for oil will increase by about 20 million barrels a day to 106 million barrels a day. About half of this increase will be required to meet China’s growing demand for oil.

Projections from the IEA indicate that most of the additional 20 million barrels a day are expected to come from a marked increase in the production of natural gas liquids (an oil-like liquid often found with natural gas) and non-conventional oil supplies (such Canada’s tar sands). Traditional conventional crude oil production will still be the world’s dominant source of oil; however, because of depletion and declining discovery rates, conventional crude supply will increase only slightly as most new production will simply offset the declines of existing fields.

At first glance, this would appear to be good news for Canada—one of the world’s self-proclaimed energy superpowers—for at least three reasons.

First, if development proceeds as expected with the tar sands, Canada will remain one of a handful of countries that produce more oil than they consume. Rising world demand for oil will ensure Canada’s energy security as an oil exporter.

Second, the Chinese government, through companies such as CNOOC and Sinopec, is attempting to ensure China’s future energy security as an oil importer by establishing a presence in—or a relationship with—almost every oil producing country in the world. China’s need for energy security means that, unlike many western countries, it puts few political, social, or environmental conditions on oil exporting countries. For its proponents, this noninterventionist approach to dealing with its energy suppliers makes China an ideal market for the tar sands, since they are now in the process of undergoing increasing scrutiny and criticism from various political and environmental groups in the U.S., the major export market of oil from the tar sands.

Third, although the U.S. may be reconsidering imports from the tar sands at this moment, it is unlikely that they would refuse them if they were to experience oil supply shortages. Given that the U.S. Congress successfully opposed the proposed sale of Unocal to CNOOC in 2005 and the belief in “continental energy security” held by many politicians in both Canada and the U.S., blocking oil exports from the tar sands to China is something that cannot be dismissed.

Although the world’s demand for oil from unconventional sources such as the tar sands may well ensure Canada’s energy security as an oil exporter, there is another side to energy security from which Canada is not immune: oil imports.

In 2007, Canada produced about 1,014 million barrels of crude oil from conventional, non-conventional, and natural gas liquids. Of this, 658 million barrels were exported to the United States. Canada consumed about 676 million barrels in its refineries, requiring it to import about 313 million barrels of crude oil.

Almost all of Canada’s oil imports are destined for Ontario, Quebec, and Atlantic Canada. These provinces obtain about 72 percent of their oil from a variety of exporting nations. As supplies from major exporters (notably the U.K. and Norway) decline, they are being replaced by supplies from other, less secure exporters (such as Algeria and Angola). With offshore Newfoundland and Labrador’s production in decline and no significant pipelines from western Canada to Quebec and Atlantic Canada, reliance on potentially insecure oil suppliers is all but certain to increase.

Moreover, the IEA’s production projections are not set in stone—they assume that by 2030, about 10 percent of the world’s oil production will come from oil fields “yet to be found”. If these do not exist or cannot be developed for economic, political, or environmental reasons, there will be supply challenges and price volatility. To what degree this will affect eastern Canada is anyone’s guess; however, rather than gambling that the IEA’s projections are correct, the federal government should be instituting programs that will reduce reliance on oil, replace insecure sources of oil with ones that are secure, and restrict new demand to energy sources other than oil.

If Canada wants to a true energy superpower, it should act like one and put its own energy security first.

Submitted to Globe and Mail 29 June 2010. Unpublished