Canada’s latest export data put a clear spotlight on just how big a role oil still plays in our country’s economy.
Exports of all goods in March reached a new monthly record of $63.6-billion, Statistics Canada reported, surpassing the previous high of $58.7-billion, set in February.
The surge is powered by oil. Energy now accounts for more than a quarter of Canada’s exports, a level last hit in 2014, when crude prices were also on a tear. Back then, Stephen Harper was a vocal booster of the oil industry, and not much interested in talking about climate change. Today, Justin Trudeau is the opposite. Yet for all the Liberal government work to try to cut Canada’s carbon emissions, the economy remains as dependent as ever on pumping oil.
Why? Because the world remains as dependent as ever on consuming oil. And Canada is among the world’s largest producers of oil. Whether you love that, as the Harper government did, or are vaguely embarrassed about it, as the Trudeau government sometimes seems to be, doesn’t change the facts of economics, geology and geography.
Canada in recent months has exported almost four million barrels a day of crude oil to the United States. That’s up about 25 per cent since 2015, when Mr. Trudeau was elected.
The Liberals put out their latest climate plans in late March and a centrepiece goal is for the oil and gas sector to cut emissions by about 40 per cent over the next eight years. It’s an ambitious target and this year’s federal budget included $7.1-billion to subsidize carbon capture technology.
It’s widely understood that the world has to start emitting a lot less carbon. The only way to do that is to lower demand for fossil fuels – something Canada is doing here at home, with measures such as federally imposed carbon pricing.
But demand in Canada remains high, as it does in the rest of the world, and the need to replace Russian oil is pushing it higher. And as long as there is so much demand for Canadian oil, notably from the U.S., there is no economic or environmental logic in trying to artificially restrict Canadian oil production. The only result would be less money flowing into Canada, and more going to every other country with oil reserves.
The Trudeau government appears to get this – though it doesn’t much want to trumpet the fact.
If global oil demand were falling, things would be different. And the potential for significantly lower demand from the world’s biggest economy began to look like a distinct possibility last year, after U.S. President Joe Biden proposed a massive, US$555-billion package of climate measures. Analysts believed it could have cut U.S. emissions in half by 2030.
But those plans have failed to make it through Congress. And in the face of recent high oil prices, Mr. Biden’s focus shifted to a scramble to find more oil – releasing 180 million barrels (about enough to supply two days of global demand) from the U.S.’s strategic reserve and courting the likes of Venezuela. (Has he considered visiting Calgary?)
For the foreseeable future, all this means continued demand for our No. 1 export. It should be seen as a double-edged opportunity – to profit, and to use the profits to turn Canada’s industry into the world’s lowest-emitting producer.
Cutting emissions from Canada’s oil industry will not be cheap. But oil and gas producers can expect record cash flow of US$150-billion this year, according to a recent Royal Bank of Canada report. It suggested Canada’s daily oil production could be pushed 500,000 barrels higher. It also estimated that slashing oil sands emissions by 40 per cent would cost about $55-billion through 2030. A big number, but a small fraction of the industry’s cash flow this decade.
Last year, the oil sands companies set a goal of net zero production by 2050. We’d suggest they aim for 2040. To help them, last month’s federal budget included a tax credit to cover about half the costs to build out carbon capture infrastructure. The amount of money being made in oil is a signal of how much demand is out there. It also makes now the perfect time to insist that the industry invest in reducing, and eventually eliminating, emissions from production.
If and when the rest of the world starts aggressively pursuing policies to lower demand for oil, then prices for and production of Canadian oil will inevitably fall. Until then, Canada should have no qualms about allowing our industry to prosper and grow, with one major condition: That it heavily curtail its own emissions.
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