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Oil and gas development won’t be the big drivers of future Canadian prosperity

By David Crane      

This means we have to rethink our future, building an economy based on new ideas and knowledge instead.

Prime Minister Justin Trudeau and B.C. Premier John Horgan, pictured in the PM's Centre Block office on July 25, 2017, met for the first time in person. The Trudeau government will not achieve its promise of a strengthened middle class unless it can find significant new sources of good jobs and economic growth, writes David Crane. The Hill Times photograph by Sam Garcia
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TORONTO—We can finally put an end to false hope that oil and gas development will be the big drivers of future Canadian prosperity. This means we have to rethink our future, building an economy based on new ideas and knowledge instead.

The idea of Canada as an energy superpower, the cornerstone of the Harper government’s economic strategy, never made real sense. But its beguiling attraction, based on sky-high energy prices and a seemingly insatiable global demand, has come crashing down. The path to easy prosperity has been closed. Now we have to think and work much harder for a prosperous Canadian future.

To be sure, the Trudeau government will continue to hold out the possibility of energy mega-projects, even when they conflict, as they often do, with its ambitions for a low-carbon economy and achievement of its climate change goals. But the reality is that the Trudeau government will not achieve its promise of a strengthened middle class unless it can find significant new sources of good jobs and economic growth.

Natural Resources Minister Jim Carr and Government House Leader Bardish Chagger, pictured in this file photo in Ottawa. The Hill Times photograph by Jake Wright

The cancellation of a planned $11.4-billion liquefied natural gas processing plant on B.C.’s Pacific Coast is just the latest sign that a future based on oil and gas mega-projects is a non-starter. The decision last year, by the other most advanced LNG project in British Columbia to put its project on hold, along with the exit from Alberta’s oil sands by major international oil companies, are other signs that while the oil and gas industry is not dead, its future is much more uncertain.

Many factors explain the collapse of the energy superpower dream. One is the sharp fall in world oil and gas prices. In 2014, oil was priced at well over US$100 a barrel; today it is less than US$50 a barrel. A similar collapse has occurred in LNG prices. So projects that once appeared economic no longer seem to be. The fall in prices reflect both an abundance of cheaper supplies and a lower rate of growth in demand.

And this may not change. Shell, for example, believes oil demand will peak in the next 15 years, then decline.

At the same time, Canada’s oil and gas industry is a high-cost industry, and sky-rocketing costs in oil sands and LNG projects, combined with a shortage of skilled workers, have also helped make many projects unattractive investments in the absence of high prices or success in achieving major gains in cutting costs. Canada operates in global energy markets and in the case of natural gas and LNG, for example, Russia, Qatar, Australia, Indonesia, and the United States are all strong competitors in Asia.

Environment Minister Catherine McKenna, right, pictured in this file photo on the Hill with Science Minister Kirsty Duncan, left, and Indigenous Affairs Minister Carolyn Bennett. The Hill Times photograph by Jake Wright

The urgent need to address the threat of climate change is another factor, since oil and gas are major sources of greenhouse gas emissions. Success in slowing and halting the growth in greenhouse gas emissions means there is enormous pressure to reduce the use of oil and gas. Based on today’s technology and what we know about the potential for better technology much of the world’s oil and gas will have to be left in the ground if the world is to live within its carbon budget, the level of greenhouse gases we can put into the atmosphere without triggering dangerous increases in global temperatures. There are even suggestions that the KeystoneXL pipeline is in trouble due to lack of customers.

Many industries are being pushed to change. In the automotive industry, for example, Volvo has announced it will only manufacture electric and hybrid vehicles from 2019, France and Britain have said they will halt the sale of gasoline and diesel vehicles by 2040, and China, the world’s largest auto market, is planning to require that eight per cent of all vehicles sold next year be electric, with plans to rapidly advance its competitiveness in electric vehicles.

Bloomberg New Energy Finance expects the growing use of electric vehicles to reduce oil demand by eight million barrels a day by 2040 when, it forecasts, some 54 per cent of new car sales and 33 per cent of the global car fleet will be electric. And carbon pricing will impact demand in many other industries and activities.

The oil and gas industry likes to blame government for its problems, including the regulatory process, environmental standards and a lack of more generous tax incentives (subsidies), as well as environmental groups and aboriginal communities. But the real difficulty is that the way the world uses energy is changing while in the meantime there are cheaper sources of oil and gas elsewhere in the world.

In the meantime, the collapse of the energy superpower dream shows the danger of putting so much hope in a single industry. In their 2013 election platform, B.C. Liberals boasted of the long list of global oil companies looking at potential LNG projects. “It’s no fantasy,” the platform said.

“The projects mean 39,000 jobs to British Columbia during construction with another 75,000 full-time jobs created once in operation,” the Liberals said. Moreover, the platform said, the LNG jobs would be high-paying, in the $100,000-plus range. At the same time, “we can create $1-trillion in economic activity and create the B.C. Prosperity Fund with $100-billion over 30 years.” The platform went on the state that “the government has set a goal of at least three LNG facilities online by 2020.”

None of this has happened. Similar fantasies could be found in Alberta when oil prices were running above US$100. Alberta would have the lowest taxes in Canada, no provincial debt, and the richest public services. It would be a haven of super-prosperity, and the centre of the new Canada, displacing the old Canada of Ontario and Quebec. Today, Alberta is desperate to diversify its economy.

There will, of course, continue to be investments in the oil and gas industry. But this is now a humbled industry and our future strengths will have to be found elsewhere. That is the challenge.
David Crane can be reached at crane@interlog.com.

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