Are Prime Minister Harper’s dreams of Canada becoming an energy superpower going up in smoke? In the last decade, his Conservative government has done everything but roll out the red carpet for the energy sector. Whether it’s multi-million dollar advertising campaigns in the United States, gold-plated junkets to foreign energy markets, or muzzling opposition from domestic environmentalists, never before have we seen Ottawa shill so unabashedly for a single industry.
Such unbridled support is more than a little ironic. In theory, Harper’s brand of free market conservatism should have him recoiling at the thought of a government trying to pick winners. Either that or the rest of us just missed the chapter in the Wealth of Nations that made an exception for Big Oil. Ideology, I suppose, is great until it becomes inconvenient.
Unfortunately for Canadians, it’s becoming clear that despite the Prime Minister’s best attempts at economic intervention, their government is playing a losing hand. While everyone from poker players to fund managers can tell you that sometimes you need to cut bait on a bad position that’s not what’s happening here. Even as the rest of the world is realizing that it must wean itself off fossil fuels, the Harper government wants to double down on the resource.
Canadians have been force-fed the idea that the energy sector is the engine of economic growth for the nation. But take a look around. Whether it’s British Columbia’s hopes for liquefied natural gas, Alberta’s for the oil sands or the country’s struggling coal mines, the news is hardly encouraging.
A newly minted gas accord between Russia and China has all but taken the wheels off B.C.’s plans to become a major LNG exporter. Natural gas from eastern Siberia will be supplied at a cost that’s 30 to 40 per cent less than what Asia currently pays for LNG shipments.
Canadian coal producers are facing a similar story. As China continues to choke on its own emissions, the country is starting to pump the brakes on what was once considered an insatiable appetite for coal-fired power. The resulting plunge in coal prices has turned into hard times for global coal miners. Canadian mining giant Teck Resources, for instance, recently shelved plans to revive its Quintette coal mine, while Walter Energy decided to close its Wolverine mine near Tumbler Ridge, B.C.
The latest piece of bad news for the energy sector comes from the oil sands, the resource Harper touts as being the crown jewel of Canada’s natural resource assets.
The owners of the $11-billion Joslyn North oil sands mine are putting the project on ice indefinitely. Total E&P Canada, the Canadian arm of French oil giant Total SA, along with its partners–Suncor Energy, Occidental Petroleum and Japan’s Inpex–said they’ve been unable to find a formula under which the mega-project makes economic sense.
The cancellation of the Joslyn project, which was supposed to scoop out 100,000 barrels a day of bitumen, follows a decision by Royal Dutch Shell four months ago to halt work on its Pierre River mine. Shell said it doesn’t have any idea when it might revive plans for the 200,000 barrel-a-day project.
High cost projects, like those in the oil sands, are exactly the ones that are most at risk as global governments begin to get more serious about restraining carbon emissions.
Ottawa may consider climate change to be a hoax, but the rest of the world doesn’t. Economic giants such as the US and China are already moving to cut back on their combustion of fossil fuels. As demand from those countries goes lower, so too will prices.
It seems a safe bet that Total’s Joslyn North mine won’t be the last cancelled oil sands venture that we hear about. If such projects don’t make sense with today’s oil prices, how good can the economics possibly look once the world gets even more serious about carbon emissions down the road?
Maybe it’s time the Harper government started thinking about Plan B.
Jeff Rubin is the former chief economist of CIBC World Markets and the author of the award-winning Why Your World Is About To Get A Whole Lot Smaller. His recent best seller is The End of Growth .