Canada’s Oil: For Sale to the Highest Bidder
Want to know why Canada’s currency is sky-high despite our sluggish recovery, our large and persistent current account deficit, and our lousy export performance?
Check out this fascinating story in Friday’s National Post, by Yadullah Hussain, on why Canada’s oil reserves are such a uniquely hot commodity in the eyes of global oil corporations.
The story explains how private petroleum giants (like Exxon-Mobil) are having a hard time replacing the reserves they produce. Over 80 percent of known oil reserves in the world are controlled by state-owned companies. Most major oil producing countries (sensibly, in my view) have decided that management and ownership of this strategic, non-renewable resource should be conducted through government enterprise, presumably in the interests of the citizens who — after all — own the stuff in the first place. [Of course, democracy is a pre-requisite for ensuring that public ownership translates into public benefit.]
That means less than 20 percent of known oil reserves are available for exploitation by private companies. Incredibly, well over half of those privately exploitable reserves are in Canada. Without Canada, private firms like Exxon can tap into only 7 percent of known world reserves.
There is a striking chart that accompanied the print version of the story (but which I can’t find in the on-line version) that listed the countries with the ten largest oil reserves. Canada was the only one of those ten where the oil industry is not dominated by state-owned firms. (Canada doesn’t even have a state-owned oil company.)
The article cited Reynold Tetzlaff, energy expert with Price Waterhouse Coopers, as follows: “If you look at the top … countries … for oil reserves, Canada is the only one that does not have a national oil company. We are the only one open for business.”
Given sky-high oil prices and oil profits, and the relentless decline of their existing reserves, the global petroleum industry has their sights set firmly on Canada as a key solution to their long-run reserves replacement problem. Indeed, even foreign state-owned companies (from Norway’s Statoil to China’s CNPC) are getting in on Alberta’s bitumen action in a big way.  It seems especially ironic that foreign public corporations see value in investing in Canadian oil, yet Canadians presently have no public capacity to do the same thing.
“These large companies need to continue to look for replacement reserves,” Mr. Tetzlaff added. In other words, Canada will be the hottest target for private oil investment for decades to come.
All that drooling on the part of global petroleum companies over Canada’s oil (which is uniquely accessible to private capital) is the key structural reason why our currency has so closely tracked the price of oil over the past decade. Our petroleum exports are important, but still constitute just 18% of total exports (including natural gas). It is not that the world wants more of what Canada produces: if that was true, Canada would not have the enormous trade and current account deficits that we now experience (despite the unsustainable windfall of petroleum exports). Rather, it’s that global companies hunger for the right to own what’s buried under our feet. This is reflected in high valuations for Canadian assets (especially anything related to petroleum), and (to a lesser extent) in strong inflows of real foreign investment as our oil resources are steadily sold off to the highest bidder. This asset market effect, driving our currency far above its fair or sustainable value, is underming our national capacity to produce and sell real stuff to the rest of the world.
As I have argued before, a good way to break this damaging link between oil prices and our currency (the 25% overvaluation of which which continues to devastate all non-resource export industries, including manufacturing, tourism, and tradable services) is to take down the “For Sale” sign currently hanging on our oil reserves.
Following the lead of the vast majority of other global oil exporters, control over the pace and nature of development should be taken back into the hands of Canadians. The non-renewable wealth embodied in those reserves should be owned and controlled by Canadians, developed in a manner consistent with the public interest — taking into account factors (like environmental sustainability, and spillover Dutch-disease effects on the rest of the national economy) that do not enter the cost-benefit calculations of the private giants hungering for Canadian oil.
Contrary to Jim’s phrasing, the overvaluation of the CDN dollar will also undermine CDN resource export sectors.
The US will not buy Canadian timber if they can source equivalent wood elsewhere. Why buy Atlantic Canada fish if you can get the same from China, NZ or Chile? Why invest in Canadian resource extraction if the dollar is projected to remain high and go higher?
There are other impacts. CDN resource firms will seek to invest and develop resource properties outside of Canada. And other CDN firms will seek to take advantge of low wage rates and lax regulation by relocating facilties to the US. This gives them two benefits: 1) They can access US markets that may be subject to domestic preferences; 2) They can use the US as an export platform to service the much smaller CDN market.
Harper is engaged in the destruction of Canada.
It is such an important subject to all Canadians.
And it resonates very very loudly, especially when it hits people at the pump, the inflationary pressure, and then also the jobs lost due to industrial transformation and decline.
This last one, just is so devastating, we are sacrificing our future innovative value adding economy, all in the name of resource extraction. And then we also reduce corporate taxation as well! Gees, like at least tax the foreign interests if they want to extract- that might actually slow the torrid and rabid pace to own everything in the West.
So I say raise the taxes, both corporate and resource and use those revenues to fund the rebirth of a new higher waged value adding capacity in Canada. It can be done, its not rocket science, (well maybe a few rocket labs might be a good idea, given the quest to extract resources form space! Then we will have all the oil we need, and even more carbon to totally upset the equilibrium of the atmospheric chemistry.)
The future is coming and resource extraction is merely a part of it, the smart future is what we do with those resources.
Pt
Letter to Editor, The Province, May 7, 2012
http://www.theprovince.com/profiting/6583887/story.html
Who’s profiting?
Alberta Environment Minister Diana McQueen accuses NDP Leader Thoms Mulcair of pitting one part of the country against another, but the real division is between the public interest and the profits of Big Oil.
Of the countries with the 10 largest oil reserves, Canada is the only one whose oil industry isn’t dominated by state-owned firms.
Unfortunately, strong inflows of foreign investment in our oil industry are driving our currency far above its fair value and under-mining non-resource export.
Why are we risking the environment and the rest of the economy for the benefit of a few energy giants, many foreign owned?
Larry Kazdan, Vancouver
© Copyright (c) The Province
Personally, I think the best approach would be two-stage. First stage, jack up royalties. To minimize conflict with the provinces, I envision a federal royalty floor: Provinces collect whatever royalties they want, but should be aware that the federal government will collect the difference between their rate and the federal floor. So, say federal floor = X% of oil revenues. If Saskatchewan charges X-5%, then the feds take 5% on top of that. If Alberta charges X-10%, the feds take 10%. If Newfoundland charges X+7%, the feds take nothing. The provinces lose no money and have an incentive to collect their own royalties, and inter-provincial competition on the issue is moot. Canada gets much more money for the resource, which is good in itself.
But above all, it reduces windfall oil company profits and hence the valuation in the oil sector. That way when you get to the second stage, expropriation, you don’t have to deal with grossly overinflated values for oil sector assets.
I realize there would be legal difficulties with the policy I outline above, due to the provinces being designated as the ones in charge of resources. That whole thing is in need of an overhaul. But since the policy doesn’t constrain provincial policies or take resource money from the provinces, nor actually regulate resource industries, and it’s a tax (which is something the Feds are supposed to be able to do), I think it might be loopholeable.
Purple LG:
The current power and wealth of the oil and gas industry makes it very difficult to impose regulatory and tax fixes. Even the most obvious regs seem impossible to achieve i.e. those to slow climate change and even to control some toxic pollution. Unfortunately after years of failure on this front many environmental groups still make those same ”reasonable” demands. Perhaps that’s changing. David Suzuki wrote last February that ”Maybe it’s time to get radical”. (http://www.okinhealth.com/articles/whats-radical-about-caring-for-the-earth-for-our-grandchild)
Dave Thompson and I have proposed that the demands should be stepped up. Oil and gas should be extracted by public interest-oriented enterprises with clearly stated public interest goals. They should not be owned by private for-profit firms. This would reduce the power of the industry and force it to serve the public. One goal among many would be to reduce externalities such as the over-valued dollar.
While in current circumstances the public interest ownership option seems unlikely in the 1970s the vast majority of Canadians were in favour of the nationalisation of the industry. That led to the creation of PetroCanada, later re-privatised. Even today one half of Canadians support nationalisation. Today, with the survival of large mammals (of which we are one species) at stake we should demand more.
Our paper has been updated and will appear as Newman, Keith and David Thompson. forthcoming. “Public Interest Ownership of the Canadian Oil and Gas Industry. ” In David Leadbeater (ed.), Resources, Empire and Labour: Crises and Alternatives. Fernwood Publishing.
The current version is available on the CCPA website at: http://www.policyalternatives.ca/publications/reports/private-gain-or-public-interest-reforming-canadas-private-industry
Don’t get me wrong. I’m all in favour of nationalization of the industry. But the “current power and wealth of the oil and gas industry” would be equally opposed to nationalization, not so? And on top of that is the question of how to afford to buy it (well, really, how to make it seem to the public like it’s worth paying the price) or, alternatively, how to muster the additional political will to expropriate without compensation or for far-below-market compensation. Expropriation at low rates would be perceived as very radical.
So I just think you can buy the beast for cheaper if you starve it some first with heavy royalties. And you can prepare the way for expropriation more strongly if you’ve already shown just how much public money can potentially be extracted from these things.
And indeed, I’m not against a strong political push for expropriation from the start. Make a policy push for expropriation, settle temporarily for heavy royalties as a “compromise” measure, then push the rest of the way once the target is weakened. That’s the way the right wing has gotten hard line ideological policies through.
Purple LG:
Certainly there is the matter of tactics.
At one time I also believed that the ”reasonable” approach would work on climate change and related issues. Ten years ago that was the Kyoto agreement. After all the federal government had ratified it and claimed it would implement it. While Kyoto was rather minimalist it did provide an internationally accepted plan that could be improved upon. Sadly the power of the climate change deniers funded by oil industry interests derailed Kyoto. So our survival on a livable world depends on de-fanging the oil and gas industry. I say call for that directly.
In terms of industrial development Canada has now adopted an overtly colonial minded approach. We used to be a colony of France, then England, then a neo-colony of the US. Now we’re a mix of US neo-colony and neo-colony of any country that’ll buy our natural resources. It’s pretty embarrassing. I think the neo-colony supporters are vulnerable if we call it what it really is.
Jim lacks tremendous knowledge and he is not very clear about his concetps.
It is not that CAD that is going up, but USD is going down the drain. Stupid is it too much to understand? Why loonie has to race downwards?
we need to buy the oil ship to china 27787122225