Strategic Petroleum Reserves
It's Not Nice to Let Eastern Canadians Freeze in the Dark
GORDON LAXER
The Globe and Mail
February 7, 2008 - Page A19
When Cape Bretoners were hit with a furnace-oil shortage in December as the
result of an early winter and late-arriving fuel tanker, it concentrated the
mind: With icy winter now gripping Canada, isn't it time to counter the
threat of longer and more widespread oil shortages in the near future?
Canada is usually an avid joiner of international conventions. But we're the
odd country out in not having strategic petroleum reserves - emergency
storage pools of oil that can be released by government to meet consumer
demand, usually for 90 days, during supply disruptions. So why haven't we
set up such reserves?
It is widely assumed that Canada doesn't need to. After all, we have the
second greatest supply of oil in the world. Prime Minister Stephen Harper
boasts to every foreign leader that Canada is an energy superpower. But this
superpower has an Achilles heel. We produce more oil than we consume but
export two-thirds of it to the United States. Meantime, we import oil to
meet 90 per cent of Atlantic Canadians' and Quebeckers' needs. Politically
volatile OPEC countries, including Algeria, Iraq and Saudi Arabia, supply
almost half of Canada's imported oil.
The problem is, we cannot divert exported oil during emergencies to Eastern
Canadians because there is insufficient pipeline capacity to get western oil
to Eastern Canada and because NAFTA's proportionality clause, requiring
Canada to export the same proportion of energy even if we experience
shortages at home, stand in the way.
Thus, despite having plenty of oil, Canada is in the same boat as other
oil-importing countries. When 47 countries conclude that international oil
supplies are precarious enough for them to build reserves, why hasn't our
government made plans for supply crises?
Natural Resources Canada and the National Energy Board are complacent about
oil security because they're focused on meeting U.S. energy security, and
say international supplies are plentiful. They also believe oil is
interchangeable with all other oil in the world.
Those assumptions no longer hold. International demand for oil is rising
rapidly, while production levels stand still. As late as 2002, spare
capacity exceeded world oil consumption by 10 per cent. Now it is down to 2
per cent - hence the recent price volatility. China and India are making
long-term contracts with producers, further reducing the availability of oil
on spot markets. These trends mean that future supply crises will be more
frequent, longer lasting and more devastating.
We should have 90 days supply of imported oil. In 2006, we imported 849,000
barrels a day. Ninety days worth is 76 million barrels. But storage
facilities are expensive to build and incur significant operating costs. We
should reduce the size of the reserves we need, and our vulnerability to
supply shocks, by cutting oil imports.
If Canada reversed the Montreal-to-Sarnia pipeline, which brings foreign oil
through Southern Ontario, Western Canadian oil would flow to Quebec and
reduce imports by almost a third. Taking the portion of Newfoundland oil
that is currently exported and redirecting it to Eastern Canada would
further reduce imports. In combination, the two measures would cut imports
to about half of current levels. Canada would need about 38 million barrels
in its reserves.
Our strategic reserves would be mainly used to shield Eastern Canadians from
oil supply shortages, but they could also be used to shield Canadian
consumers from sharp price surges. These reserves are not the full answer to
Canada's energy challenges. We need to substantially reduce oil consumption
to cut imports and greenhouse-gas emissions. Energy strategy must also be
redirected to a Canada-first orientation so that, when Canadians cut fossil
fuel consumption, the surplus is not merely exported to the United States.
It is time for Canada to urgently join all other industrial countries in
establishing strategic petroleum. It is irresponsible to let Eastern
Canadians freeze in the dark.
Gordon Laxer is director and co-founder of the Parkland Institute, and
author of Freezing in the Dark: Why Canada Needs Strategic Petroleum Reserves.
http://www.ualberta.ca/PARKLAND/research/studies/SPR Report.pdf
