Canadian Oil Security And the Impact of Supply Disruptions

Abstract

This paper examines Canada's role as an industrialized energy-intensive consuming nation in the western world. It focuses on Canada's attitude toward the restricted utilization of its petroleum resources, petroleum being the country's main single source of energy. It examines the political wisdom and the corporate and national economics of Canada's "buy cheap and sell high" oil import/export policy and it attempts to solve, in at least a semi-quantitative way. the "risk/payoff/loss" equation of the international oil poker table at which Canada is but a four- percenter. In attempting to grapple with this complex subject, the paper first reviews Canada's role as a special member of the Organization for Economic Co-operation and Development (DECO) and the objectives of the OECD which unite the industrial nations of the western world. It then specifically considers:the pattern of energy demand and supply in the OECD community and the international petroleum trade which results from these interrelations;the results of previous supply disruptions in the unstable, but oil-rich, OPEC block which feeds the DEOD nations with oil, and the impact of such disruptions on Canada;the possibility, nature and magnitude of future oil supply disruptions, the resultant scenario, and the impact that they would have on Canada in both physical and economic terms having regard to existing and potential back-up sources of oil supplies. Finally, the paper attempts to quantify the real cost/ price economics of international integrated producer/ refiners operating in Eastern Canada, for the purpose of determining the profit incentive driving such companies to maintain the status-quo; it also provides the basis of a fundamental benefit/cost study of Canada's oil import policy, without which scrutiny of the "N.O.P." becomes an entirely qualitative exercise (to be presented in Part II). The paper suggests that the security of Canada's imported oil supplies is diminishing with time due to the current near capacity situation of the aging U.S. and Venezuelan oil industries. It also develops as a basic theme Canada's obligations to the OECD community and the premise of sharing remaining supplies among the energy-hungry DECD countries in times of oil supply disruptions. Because of this concept, the paper notes that a supply disruption amounting to some 20 per cent of OECD demand would be magnified to have double that effect on Eastern Canada. The paper concludes that Canada is pursuing a policy on oil imports which both jeopardizes the economic security of Eastern Canadians, through exposing them to a growing uninsured oil supply risk and runs against the public interest of Canadians as a whole from a national cost/benefit point of view. The authors recommend that Canada should take a much closer and more sophisticated look at the changing situation in, view of their preliminary findings. They also suggest that a connection to domestic sources of supply could provide coverage of the security risk noted.