The State of Oil and Gas

What is the state of Canada’s oil and gas sector? It is difficult to get a grasp as we’re living in an era of conflicting information and sensational news. Sometimes you have to wonder whether the sector is supported by the country, as it seems there is only negativity surrounding oil and gas. The truth is that energy production, until renewables become a viable replacement to conventional sources, is never going to be warmly embraced. While it might be crude mining coal, drilling oil and enriching uranium, we live in a world that needs it.

To get a clearer notion of Canada’s future in oil and gas, there are factors worth focusing on. The first is the geopolitics of global oil producers and the importance for these countries to maintain a high price of oil. The second is Canada’s role as a producer and why its participation brings value to the world as one of the leading innovators in the industry.

Canada is the fifth largest oil producer in the world and has the third largest proven reserves in the world. This puts Canada firmly on the playing field of major producers. Unfortunately, Canada’s influence on the sector is limited as it is tied to only one major importing partner, the United States of America. When the Organization of Petroleum Exporting Countries (OPEC) pulls a hard line ramping up oil production and flooding the market with cheap oil as a way to destroy its growing shale oil competition in North America, Canada is vulnerable to the consequences. Fortunately, this gamble backfired on OPEC and they were forced cut back production in order to increase prices.

With prices slowly rising there is more confidence in the sector. Canada is claiming larger market shares from the U.S. With this rebound in oil, the next step for Canadian oil production is to solidify the diversification of exporting potential that it has sought for many years now. The first step was the approval of the Trans Mountain and Line 3 pipelines. The Trump Administration’s approval of Keystone XL is also an important step, but as it falls under the purview of bipartisan approval and coordination between the two countries. Now, it is better to focus Canada’s efforts on projects that are entirely under our control. With political decisions made, it is essential that the projects get underway.

Energy East is another pipeline that needs a hard line to be taken in order to see its approval. For Western Canada, it’s frustrating to operate when eastern partners are not ready to play ball. It can be hard to take when Quebec and Ontario receive equalization payments, yet oppose the construction of an important pipeline to ship valuable Western Canadian oil and instead import foreign oil to use in their refineries. It seems there is something wrong with this picture. You might think if Montreal Mayor Denis Coderre is so opposed to Energy East for environmental reasons, he would stop pumping his city’s raw sewage into the St. Lawrence River.

While it is frustrating, it is important to not get wound up in all the politics. There are fundamental and positive aspects of Canada’s oil producing potential. There is a global need for this commodity. Canada controls and effectively produces a large portion of said commodity. There are continuous strains on the global industry, but ultimately if Canada can diversify its exporting markets and continue to be an innovative producer, then the future looks bright for the oil and gas sector.

Canada can also lead in innovation in the sector. From a global point of view, for anyone concerned with the environmental impact that global oil production has, they should advocate Canada’s participation in this industry. Hypothetically, if Canada were to stop producing oil tomorrow, that market share would disappear immediately. More importantly, it would disappear to countries that invest little to no money in environmental protection, industrial safety advancements, or generally accepted forms of state governance. For example, Saudi Arabia is one of the worst human rights abusers in the world but they are a major Canadian ally and we buy their oil.

Perhaps this is simplifying the issues, but sometimes it is healthy to break down an issue and examine it from the root up. The fact is we need to harness the potential of the Canadian oil sector. Canada has the ability to innovate and create standards of operation that the world adopts. When a commodity holds value and the country can benefit from this value, we should. Oil production is a polarizing topic, but this is the nature of conventional energy production. For now, continued growth of Canadian oil production is important to the entire country, and the sector’s health relies on the country accepting that fact.