Opinion: State of the Industry – Oil & Gas in Canada

If you feel like the oil and gas industry in Canada is on a crash course for failure, then you’re in abundant company with many from the industry. As if it wasn’t difficult enough to compete in the global oil industry, Canada is clearly presenting continued difficulties for an already struggling sector.

The unsuccessful gamble by the Organization of Petroleum Exporting Countries (OPEC) back in 2015 saw those countries increase production and flood the world market with cheap oil. The strategy was meant to undermine much of North America’s higher-cost fracking operations. Luckily, North American oil production weathered the attack, but it has had a very negative impact that is still being felt to this day.

Prices swinging from $120 per barrel to $40 per barrel in such a short period of time, is enough volatility to dissuade even the most stalwart business person. This being said, the oil sector has created an enormous amount of wealth in the country and is one of its most important sectors. So, why is there so much opposition being leveled against it?

The cancellation of TransCanada’s Energy East Pipeline and Eastern Mainline Projects is the most recent blow to the sector. The project was slated to create a 4,600km pipeline stretching from Alberta to an export terminal in New Brunswick. An estimated 1.1 million barrels of crude oil would have flowed through the pipeline every day. Its demise is attributed to the ongoing economic versus environmental debate going on in Canada, and the environmental side is winning.

As I have argued before, the environmental argument is convoluted in the sense that it focuses solely on Canada and not the global impact of oil production. Canada is demonstrably one of the cleanest and safest producers of oil and gas in the world. Stringent rules and regulations govern the sector. So, as Canadian oil production drops, that market share is swallowed up by our global competitors like Saudi Arabia and Russia. That does a wonderful job assisting cruel dictatorships.  The National Energy Board released data showing Canada’s growing importation of oil.1 In 2016 the country imported 759,000 barrels a day.2 This is the highest importation rate since 2012 and the percentage coming from OPEC countries has risen to over a third.

Between the billions spent by Eastern provinces to import foreign oil, the billions spent (primarily by Alberta) in equalization payments, and the continued discrediting of the industry, oil and gas in Canada is going through a dark time. Perhaps there was a contentment with the status quo, servicing the exportation to one primary client. However, most economists will tell you this is a disastrous strategy and to diversify your markets. Is anything going to change though? It certainly doesn’t seem like it.

We seem to be stuck in entrenched philosophies, platforms and beliefs. We need active work being done and we want to see progress. Let’s see continued attention on this topic. Let’s see the engagement of the critics and the addressing of their concerns. Let’s bring First Nations concerns to bear and ensure they have a stake in how oil is developed in this country. This is too important an industry to let it pale in this manner.

Thoughts? Let us know—I’d love to hear from you at info@industrywestmagazine.com.


1, 2http://business.financialpost.com/commodities/energy/opec-oil-exports-to-canada-rebound-in-2016-as-u-s-producers-seek-new-markets