Tar Sands Dependence Could Lead to Negative Fallout for Canadian Economy

Recent forecasts from the International Energy Agency (IEA) and British Petroleum (BP) have cast new doubts on the long-term economic viability of exploiting the Albertan tar sands.

In a November report, the IEA predicted that demand for tar sands production in 2035 will be 3.3 million barrels a day, lower than the Canadian Association of Petroleum Producers’ (CAPP) more optimistic estimate of 5 million barrels a day. BP’s Energy Outlook 2030, published in January, also forecasts that US oil imports will fall 70 percent by 2030 from 11 million barrels a day in 2011.

Citing the BP and IEA forecasts, author and former Oilweek editor Earle Gray writes in the Toronto Star, that “a host of factors dims the prospects for the oilsands.” Gray lists “slower growth in world oil demand, increasing energy efficiency, alternative fuels and possible caps on global warming emissions of carbon dioxide” as reasons the Harper government should be weaning the Canadian economy off the tar sands.

Gray also questions the wisdom of the United States trying to cash in on Canada’s risky golden goose via the Keystone XL pipeline. According to the IEA, the US, which currently imports about 20 per cent of its energy needs, is projected to become the largest producer of oil in the world by 2020. This would result in it becoming “all but self-sufficient in net terms” by 2030. The reasons for this trend include the shale gas revolution, which is seeing the country opening up new energy reserves through the extraction of natural gas from shale rocks by drilling, or “fracking,” in itself a controversial practice.

The increased gas and oil output has lowered the price of natural gas in the US. As Gray writes, the shale revolution “promises a fivefold increase in the world’s known recoverable oil, according to estimates by the International Energy Agency.” Which makes it doubtful that Canada should be banking on a sustainable demand for tar sands oil from its neighbour. None of these developments make the expensive Keystone pipeline sound like a good investment for the US to embrace. Whether or not the Obama administration will approve the pipeline is yet to be seen, but the chances seem to be lowering.

International increases in energy efficiency could further contribute to falling demand for oil, alongside rising demand for alternate fuels. The IEA notes that China wants a 16 per cent reduction in energy intensity by 2015, Japan a 10 per cent cut in electricity consumption by 2030, and the European Union a 20 per cent reduction in its energy demand by 2020. Not the most ambitious goals, perhaps, but indicative of the risks to be expected by a country aiming to become a major oil exporter.

Gray also observes that plans to increase domestic sales of oil from Alberta to Ontario, Quebec and the Atlantic would likely require a resuscitation of the 1961 National Oil Policy. The Policy mandated that the use of imported oil be restricted to areas east of the Ottawa, giving the Alberta oil market an exclusive domestic market in the west. As a result, the west paid higher prices for Albertan oil, while the east paid the lower global price. By 1973, the Policy was gone. Gray deems a revival of such a policy unlikely.

Even putting aside environmental concerns, it’s becoming clear that the Harper government’s continued reliance on the tar sands and the Keystone pipeline as the source of a bright economic future for Canada seems myopic at best.

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