LONDON, ON, Feb. 4, 2015 – Despite falling oil prices, Canada still needs to invest in new pipeline infrastructure for natural gas exports outside North America and for oil exports to Asia and Europe, to protect the long-term health of its economy.
In fact, some analysts say slumping oil prices result from more supply coming on to the market, which could hurt Canada’s dominant position as a producer of oil and gas globally. A new policy brief from the Ivey Energy Policy and Management Centre, Developing Global Market Access for Canada’s Oil and Gas Industry, outlines why Canada’s dominance in the oil and gas market is under threat. It also makes three recommendations for strengthening Canada’s oil and gas sector related to investing in new pipelines and natural gas facilities.
“A drop in oil prices is exactly the type of problem we’re trying to avoid, which is why we are making recommendations hoped to strengthen Canada’s role as a global supplier of oil and gas,” said Ivey Assistant Professor Adam Fremeth, holder of the Ivey Energy Consortium Fellowship, which supports research in applied energy policy issues directed at industry and government.
Fremeth is the lead author of the policy brief, which was co-authored with Guy Holburn, Director of the Ivey Energy Policy and Management Centre and Suncor Chair in Energy Policy; Western University student Pradeep Venkatesh, a research intern with the Ivey Energy Centre; and André Wilkie, Associate at The Boston Consulting Group.
While Canada has been a leader in the oil and gas industry for 30 years and is currently the world’s fifth largest producer of both commodities, Fremeth warns that position may slip. Since the mid-2000s, oil exports have steadily increased while gas exports have rapidly diminished, leaving Canada reliant on a single commodity (oil) and a single market (the U.S.). Coupled with the inherent volatility of commodity prices, Canada is now exposed to a much greater degree of economic risk, said Fremeth.
“We need a more balanced approach because of these volatilities. It’s not just about oil, but also about establishing a natural gas market. We need multiple products and multiple markets to build this sector in the economy,” he said. “Oil and gas are such a huge part of the Canadian economy. Our recommendations are aimed at supporting Canada’s long-term economic growth.”
Together, oil and natural gas extraction have become one of Canada’s main economic drivers. According to Statistics Canada, oil and gas extraction contributed 7.2 per cent of Canada’s GDP in 2012. On a per capita basis, the sector has contributed an average of nearly $595 per year between 1997 and 2012.
The policy brief points to recent developments that impact Canada’s oil and gas industry, including:
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The rapid growth of U.S. shale gas production which displaces Canadian exports of natural gas and drives down regional natural gas prices;
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The proposed liberalization of the Mexican energy sector, which may make Mexico a major competitor to Canada for exporting oil to the U.S.; and
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Limitations on the availability of pipeline infrastructure for accessing export markets.
To counteract these threats, the policy brief makes the following recommendations:
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Leverage Canada’s natural gas resources for export outside of North America by investing in new pipelines, liquefied natural gas facilities, and export terminals in new areas of the country;
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Develop new Asian and European oil markets by investing in existing or new pipeline infrastructure and leveraging the Comprehensive Economic and Trade Agreement; and
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Reinforce Canada’s position as a favoured supplier of oil in the U.S. by expanding pipeline networks that link Canadian and U.S. oil-producing regions with Gulf Coast refineries and continuing regulatory harmonization through the Canada-U.S. Regulatory Cooperation Council.
To interview the authors, please contact Ivan Langrish, Senior Manager Media Strategy, at ilangrish@ivey.ca, or call 416-203-0664. To read the full policy brief, visit Developing Global Market Access for Canada's Oil and Gas Industry.
About the Ivey Business School, Western University
The Ivey Business School (www.ivey.ca) at Western University is Canada’s leading provider of relevant, innovative and comprehensive business education. Drawing on extensive research and business experience, Ivey faculty provide the best classroom experience, equipping graduates with the skills and capabilities they need to tackle the leadership challenges in today’s complex business world. Ivey offers world-renowned undergraduate and graduate degree programs as well as Executive Education at campuses in London (Ontario), Toronto and Hong Kong.
MEDIA CONTACT:
Ivan Langrish
Senior Manager, Media Strategy
416-203-0664
ilangrish@ivey.ca
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