The Truth About Canada (40 page)

Some estimates suggest that in the not-too-distant future up to 80 percent of the world’s future conventional oil supply will have to come from the Middle East. The International Energy Agency says while demand for crude is increasing very substantially, supplies from non-OPEC countries are declining.

Are there those who
don’t
believe that global oil discoveries have been in precipitous decline? If there are, they must be living deep in a cave. Every decade since the 1950s, new discoveries have fallen sharply, from a high of 470 billion barrels in the 1950s, to only 120 billion barrels in the 1990s. Two studies, one by the U.S. National Petroleum Council and the other by the IEA, both forecast that it will be impossible to meet soaring demand, that a supply squeeze will occur as early as 2012, and a severe crisis will affect all major petroleum-consuming countries by 2030 at the latest.

Listening to the nonsensical industry propaganda from the “quickly, we must have more exports” producers in Calgary, you would think there’s no reason in the world for concern. That’s because they include “waiting to be discovered” figures in their reserves. But actual reserve figures show a steady decline.

Since Ottawa’s castration of the National Energy Board, oil and gas exports have been largely determined by the producing companies, now majority foreign-owned and controlled. Is there anyone anywhere who believes for a moment that these foreign firms have Canada’s best interests in mind, or that they might ever consider responsibilities to future generations of Canadians? Mind you, few Canadian-owned petroleum companies are any better.

As for the National Energy Board, in an April 2007 letter to Gordon Laxer, they say that “unfortunately the NEB has not undertaken any studies on security of supply.” Surely an astonishing admission of government incompetence in a country with such increasing exports and diminishing reserves.

Meanwhile, Enbridge and ExxonMobil are working on a major pipeline to supply oil to Illinois and Texas that could move 400,000 barrels a day. TransCanada is proceeding with a new pipeline to southern Illinois, with links to Oklahoma and Texas. Altex Energy is working on a $3-billion, 250,000-barrel-a-day pipeline to Texas. An ExxonMobil pipeline from Canada is now delivering mostly raw bitumen to Louisiana, and Kinder Morgan is planning yet another pipeline to Texas.

But fear not, a July 20, 2007, heading in the
Globe and Mail
tells us that, according to a U.S. energy economist, “There’s No Downside for Canada” from all the new pipelines and vastly increased exports.

So is there a chance any of this is going to change? Not according to the U.S. Energy Administration in Washington, as reported by CanWest News Service:

Canada — which in 2005 replaced Saudi Arabia as the single-largest supplier of energy to the U.S. — will continue that position over at least the next two decades, thanks to the multi-billion oil sands developments in Alberta.

Canadian exports to the U.S. will reach 2.6 million barrels per day by 2030, compared with current levels of just over one million bpd.
⁷

In October 2006, a new Natural Resources Canada study
⁸
predicted declining natural gas production and increasing reliance on expensive, polluting oil sands production. Shawn McCarthy of the
Globe and Mail
put the document in the correct perspective: “The report represents a stark contrast to the message of bullish federal and provincial politicians and oil industry officials who have assured consumers in the United States that they can rely on Canada to help meet their growing energy needs.”
⁹

The study says Canada’s natural gas production will peak at 6.6 trillion cubic feet a year by 2011, and then it will decrease. While coal-bed methane and Mackenzie Delta natural gas may help soften the impending decline in gas supply, they will come nowhere near reversing the sharply downward trend expected to develop within the next three to four years.

On the subject of our natural gas exports, the
Globe and Mail
’s Eric Reguly writes: “Imagine the premier of Ontario explaining to voters that the province can’t build a Kyoto-friendly natural gas plant to replace the doomed coal burners because Alberta needs the clean fuel in Fort McMurray to make oil for American SUVs.”
¹⁰

Even if you don’t hear much (or anything) about it from either Calgary or Ottawa, even the Americans now realize that Canada is running out of natural gas. Yet despite the fact that our reserves peaked in 2001 or 2002, we’re still mindlessly sending most of our production to the United States. By the spring of 2006, the average initial production rates of the best new gas wells was already down almost 25 percent from the 2002 rate. The latest U.S. estimates are that Canada is going to run short of natural gas despite “heroic” industry exploration efforts.

One of Canada’s leading government energy experts from Calgary, who asked not to be identified by name, described the natural gas situation to me as “pretty scary.”
¹¹

There are some who have been led to believe that Canada’s reserves of Arctic natural gas will help alleviate concern about our dwindling supplies. Not so. If and when the planned pipeline is ever built, much of the Arctic gas will go straight to Northern Alberta for use in the oil sands. Just one Cold Lake oil sands project consumes 100 million to 150 million cubic feet of natural gas a day. Producing a barrel of tar sands oil requires from 1,000 to 2,000 cubic feet of natural gas, plus between four and six barrels of water. Just think about that for a moment. It’s becoming clear that a limited natural gas supply may be a crucial problem for much greater oil sands production. And estimates suggest that new plants are going to need an extra 180 million litres of water a day, over and above the 140 million now committed. There is already great
concern that water levels in the Athabasca River are more than 30 percent lower than they were in 1970:

The amount of water available in Northern Alberta isn’t sufficient to accommodate both the needs of burgeoning oil sands development and preserve the Athabasca River contends a study issued jointly by the University of Toronto and the University of Alberta.

“Projected bitumen extraction in the oil sands will require too much water to sustain the river and Athabasca Delta, especially with the effects of predicted climate warming.”
¹²

Should we be exporting our fast-shrinking natural gas reserves so rapidly? Even Jim Dinning, former Alberta Conservative provincial treasurer, has suggested that Alberta should have a 50-year supply of natural gas before more is exported from the province. Dinning provides the following great quote: “Injecting natural gas into the oil sands to produce oil is like turning gold into lead.”

By the summer of 2006 we were producing about 2.5 million barrels of oil a day. Some estimates suggest that by 2015 this will increase to 4.5 million barrels a day, of which over three million will come from the oil sands. In 2006, we were exporting over 1.7 million barrels a day to the United States and at the same time importing some 750,000 barrels for refineries in Eastern Canada.

On the surface, if bullish estimates are reasonably accurate, all might seem well. But as we will see, given that the Alberta oil sands are the biggest contributor to the growth of greenhouse gas emissions in Canada,
¹³
and given that Alberta, with only just over a quarter of Ontario’s population, already emits more greenhouse gases, and given that oil sands production is scheduled to triple within the next decade, and that some 75 percent of the production is for export to the United States, and that the Alberta economy is already badly overheated — well, given all that, what do you think we should be doing?

Alberta Finance Minister Lyle Oberg warns Ottawa not to touch the expensive special tax concessions for the oil sands, which amount to a subsidy of over $425-million a year for the petroleum companies. You know, those poor petroleum companies whose remarkable records show that, after royalties, after tax, after depreciation and all other expenses, they made net profits of $85.7-billion from 2003 to 2005 inclusive and still somehow managed to pay an after-all-expenses tax rate of only 29 percent.

For amusement, try this. At royalty hearings in Alberta, the president of Canadian Natural Resources warned that higher royalties would mean “drastically” lower energy activity in Alberta: “It’s a myth out there that this is a hugely profitable business.”
¹⁴
Perhaps there’s someone out there concerned about poor Imperial Oil, majority-owned and firmly controlled by Exxon Mobil Corp., whose 2006 profit of $39.5-billion was the largest in U.S. corporate history and whose market capitalization has exploded from $80-billion to $360-billion. Or perhaps they might be concerned about Chevron, the second-largest U.S. oil company, with three consecutive years of record profits, $17.1-billion in 2006. Poor Imperial Oil saw its profits increase in 2006 by only 15 percent over 2005, to $3.04-billion, while EnCana’s profits were expected to be $7.5-billion, the biggest-ever in Canada’s corporate history.

In a June 2007 study, Shawn McCarthy, writing about comments by the leading Edinburgh-based consulting firm Wood Mackenzie, said,

World oil companies have hit a gusher in Canadian tax policy. In the past five years, Canada is the only significant oil and gas producing country to actually reduce its share of oil revenues.

Many other oil-rich jurisdictions, including Britain and Alaska, have significantly increased their share of the revenue generated by rapidly rising prices. But, as a result of cuts to federal tax rates introduced by the former Liberal government, oil companies have seen their tax bite reduced. Tax rates in Canada are lower than they were when prices started to rise.
¹⁵

Only in Canada, you say?

Oh, and by the way, according to Albert Koehl, a lawyer with the Sierra Legal Defence Fund, “the federal government has handed out more than $2 in tax subsidies to these companies for every $1 it spent on Kyoto compliance.”
¹⁶

Around the world, state oil companies now control between 80 and 90 percent of the world’s oil and gas. ExxonMobil, the world’s most valuable company, is only 14th in the world in reserves, after 13 national oil companies.
¹⁷
As John Warnock pointed out in a paper for the Parkland Institute, the huge profits accompanying the petroleum price increases have largely gone to the OPEC country treasuries. But most of the windfall profits in Canada and the United States have gone to large private corporations, many of them effectively able to siphon the profits off to tax havens by selling at a low price to a subsidiary in one of the tax havens and then selling it into the market at a much higher price. According to Warnock, by 2003, “58% of U.S. corporate profits were taken in offshore tax havens.”
¹⁸

Returning briefly to the question of who should own our oil and natural gas, in a September 2006 poll, when asked, “Do you think provincial resources should belong to all Canadians?” 76 percent said yes and only 21 percent said they should belong to the people who lived in the province where they were produced. Even in Alberta, 55 percent said resources should belong to all Canadians, while only 39 percent said only to the people who lived in the province.
¹⁹
Yet by 2004, 55.2 percent of all oil and gas extraction revenue was already going to foreign-controlled firms. The figure for 2007 isn’t out yet, but you can bet it will be close to or above 60 percent.

By the way, roughly three of every four Canadians have been against the federal government selling its share in Petro-Canada.

As for what Albertans and Canadians receive from the exploitation of the oil sands, it’s difficult to believe our politicians could really have been so incredibly stupid. Writing about how Alberta lowered its oil sands royalties to 1 percent until producers recovered their capital costs, the
Globe
’s Eric Reguly said,

The change amounted to one of the biggest energy giveaways ever … one of the lowest oil royalty rates on the planet.… Between 1995 and 2002 Norway collected an average of $14.10 (U.S.) a barrel in royalties, compared with just $4.30 (U.S.) for Alberta, according to a report by the Pembina Institute: “And then Ottawa chipped in with an accelerated capital cost allowance, allowing write-offs of 100 percent against first year income.”

Reguly asks, “Why should taxpayers have to subsidize the world’s most profitable product?”
²⁰
Incredibly, even as oil prices dramatically escalated to record levels, Ottawa’s take headed downhill. Federal corporate petroleum industry taxes brought in $5.1-billion in 2005, but these are expected to plummet to $2.4-billion in 2008, even though the industry will take in a massive $100-billion revenue from 2006 to 2008.

At the same time, Alberta has been facing a large drop in royalty revenues despite rising production and high prices. In 2006, oil sands royalties were $2.3-billion. By 2009/2010, they were expected to be only $1.1-billion, the same level they were five years earlier on much smaller production levels. Total petroleum royalties were expected to fall from $9.8-billion in 2006/2007 all the way down to $6.6-billion.

In November 2006, the Pembina Institute said that Alberta was receiving almost a third less in royalties from a barrel of oil than it did 10 years earlier. It said, “In short, citizens are losing out, while corporations are winning.” And according to consulting firm Wood Mackenzie, “The feverish pace of development that the tax and royalty regime are facilitating is resulting in significant negative environmental and social impacts.”