Bank of Canada Governor Mark Carney grazed the edges of the hot political debate over the Keystone XL pipeline, telling an audience in Washington Thursday the "uncertainty around infrastructure" is starting to slow investment in Canada's energy industry.
Mr. Carney's remarks were prompted by a question about Keystone, which has become a flashpoint for a heated rhetorical clash in the United States over greenhouse gas emissions, continental energy independence and jobs. President Barack Obama last year delayed the TransCanada Corp. project, and now is weighing anew whether to allow the pipeline to proceed along a redrawn route.
Canada's central bank chief prefaced his carefully worded remarks by saying that nothing he said should be construed as a comment on any particular comment. Still, his remarks are sure to attract attention, as they establish what's at stake for Canada, and undermine an argument favoured by Keystone's opponents.
Canada's relative strength in the aftermath of the financial crisis has much to do with the strong commodity markets, including oil. Higher prices generated wealth that in turn prompted investment and hiring. Canadian Prime Minister Stephen Harper started talking about Canada as a rising "energy superpower."
Lately, such talk has come to look premature. Canada is capable of producing more oil than it can get to market because of a dearth of delivery options. The result is a "differential" between the world price for oil and the price Canadian producers are able to claim amidst a glut at U.S. refineries.
Mr. Carney said that differential will remain a reality until North America's oil-and-gas infrastructure catches up to the supply the continent is capable of producing. The Keystone delay, and unfulfilled promises to extend pipelines to the Canadian west and east, only exacerbates the situation, Mr. Carney suggested. The result is fleeting interest in Canada's oil sands.
"We think the volatility around crude prices and some the uncertainty around infrastructure is affecting energy investment," Mr. Carney said at an event hosted by Thomson Reuters. "We think we are starting to see the implications of that. And that is tempering an otherwise robust investment profile in the energy sector."
The Bank of Canada said Wednesday in its latest quarterly economic report that lower energy prices contributed to a marked slowdown in engineering investment in Canada over the second half of 2012. The report also said that weaker prices are making it harder for smaller oil companies to attract capital.
While attempting to remain apolitical, Mr. Carney in his analysis of the energy landscape effectively dismissed an argument that often is used against Keystone.
The pipeline's opponents tend to highlight the U.S.'s oil-and-gas boom as evidence the country has little need for Canadian imports. Indeed, some research suggests the United States is on a path to energy independence. But that interpretation of the U.S.'s potential isn't universally shared, and Mr. Carney on Thursday sided with the skeptics.
"Despite all the elements of shale oil and shale gas in the United States, which is bringing tremendous benefits to this economy, to be truly energy independent, it still is a question of North American independence," Mr. Carney said. "And in order to establish that, there needs to be changes to energy infrastructure cross border, and east-west in Canada. We're not picking exact projects as favourites. But the big picture is that it is going to take an integrated strategy on each side of the border. "