Saturday, December 15, 2012

Canada, 2013: political default and oil riches

Stresses are appearing in Canadian public life not only over the question of what to do with our oil, but also over what to do with the money we earn from it.
Thanks to Canada’s “equalization” policy, billions of dollars are shuttled (indirectly) from the country’s richest provinces to its poorest on an annual basis. In recent years, this has meant that oil-rich Alberta (per capita GDP = about $78,000) generously subsidizes the welfare-state policies of an out-at-the-elbows Quebec (per capita GDP = about $43,000). This has created no small measure of rancor in the country, especially because Quebec's left-wing, environmentalist politicians have made a habit of attacking Alberta’s oil industry for its pollution and contribution to global warming, essentially biting the hand that feeds them.
Agreeing with Mr. Kay however, does not minimize the influence of the current federal government, whose leader represents a Calgary riding, and whose parent political party  (The Reform Party) was conceived, incubated and born in Alberta,
and has proven itself impenetrable to the arguments of the environmentalists and is playing a silent and therefore ineffectual hand in anything resembling even dialogue between the federal and provincial governments, or between the provincial governments themselves, in spite of the many urgent pleadings of provincial premiers to 'come to the table.'
Prime Minister Harper has adopted a stance that could be compared to the stance of Washington, when dealing with the states, as if the states rights issue has become a Canadian political reality. However, that has never been the way the Canada has operated, nor is it the way that Canada will resolve the obvious and growing cracks in the body politic's consciousness.
Quebec has just elected a "separatist" government from a population that opposed Canada's entry into the war in Afghanistan, and who has been essential to previous majority governments. Harper has won a majority government without the support of the people of Quebec, so while there are aspiring politicians from that province, among them two currently running for the leadership of the Liberal Party, for nearly a century Canada's ruling party, the voice of Quebec is muted on national issues, except for the Leader of the Opposition, Thomas Mulcair, and a host of newly elected political neophytes, many of them in their twenties who never expected to win seats in parliament.
With Harper diligently avoiding the negative press coverage from the provincial premiers' whining about the size of the  federal contributions to national programs like health care, funding by Ottawa by operated by the provinces, there is really no national voice at the table, because the table has effectively been removed by the federal absence.
So, while our political problems are different from the U.S. in that two parties are not locked in a death watch, the "guiding and leading" hand of Ottawa no longer plays much of a role in the national debate, on those issues that really matter to the people of all provinces.
Ottawa's government is also, contrary to the historical model, a pale representation of the Tea Party, fixated on their own "fiscal responsibility" and competence, while demonstrating an appalling lack of both expertise and intellectual acumen, in those very policies for which it seeks to earn re-election, like purchasing a new generation of fighter jets for the Air Force, like breaking down inter-provincial trade barriers, like paying attention to the facts on the ground in their approach to law and order, and in their mishandling of tragic living conditions among the aboriginal peoples, by sending in an accountant rather than addressing the root causes of the problems.
So while it is silent and absent from provincial-federal conversations (there are none) it attempts to 'ride above the fray' thereby contributing significantly to what many are calling the 'balkanization' of the country, with even the premier of British Columbia demanding a substantial payment to cover the costs of preventing and potentially cleaning up a serious spill of oil, from the proposed Norther Pipelins, for permission to build. Her stance which could and should have been mediated by Ottawa, provoked a loud and angry response from the premier of Alberta, deeping the divide between the provinces, without a political resolution.
So, like the U.S. our problems are primarily political...not economic or fiscal, and the likelihood of resolving them under the current federal government grow smaller every day.
Some are advocating a national energy strategy that would see Alberta's oil moving to the eastern provinces for both refining and for use in a revived manufacturing sector. Whether there is the political will and energy for such a national project, in which Canadians have taken pride for more than a century (in rail, in communications, in health care, and in parks highways and postal and military, and even, under Trudeau in language and cultural maturation) is doubtful. But then, there seems to be a vaccuum of political solutions to the most pressing problems in so many countries that we may be already entered upon a century of political eunuchs, the likes of which history has rarely, if even witnessed.
Canada in 2013: it's all about the oil
By Jonathan Kay, Special to CNN, from CNN website, December 14, 2012
Editor’s note: Jonathan Kay is the Managing Editor for Comment at Canada’s National Post newspaper and a fellow at the Washington, D.C.-based Foundation for Defense of Democracies. Follow him @jonkay. The views expressed are his own.
Canada is in a fortunate position relative to other developed Western nations. Our government is stable. Our budget deficit is small. Our real estate market is healthy (if somewhat overheated). And unemployment is relatively low. Only the occasional flourish of Quebec separatism keeps things lively in the Great White North. The biggest challenge my country will face in 2013 – and for many years after that – will be the problem of plenty. Specifically, how will Canada manage its large and growing oil wealth?
Canada currently produces just over 3 million barrels of oil per day (b/d), making us the world’s 7th largest producer, and the single largest supplier of oil imports to the U.S. market. Thanks to the ongoing expansion of Alberta's oil sands, production is expected to more than double by 2030, to 6.2-million b/d, transforming Canadian into an energy superpower.
But there is a problem: The vast majority of the country’s oil wealth is landlocked in northern Alberta. And the existing pipeline network, which connects the large Canadian hubs at Edmonton and Hardisty, Alberta to the main American terminals in Oklahoma and Illinois, is inadequate. Half of America’s 18 million b/d refining capacity sits on or near the Gulf Coast. But barely any Canadian oil gets there (in part because of America's own oil pipeline bottleneck at Cushing, Oklahoma).
For this reason, in 2013, Canada’s government and oil producers will be making a big push for U.S. President Barack Obama to reconsider the Keystone XL pipeline project, which could bring 830,000 b/d from Hardisty, Alberta to Steele City, Nebraska.
Perhaps more important for Canadian producers, in the long run, is the massive and growing Asian market.
China’s net oil imports are projected to double between now and 2030, from 5.7 million to more than 12 million b/d. India's net imports, likewise, will grow from about 3 million to about 6 million b/d. Yet despite the spider web of pipelines that cover the North American Midwest, there is just a single oil route to the west coast from Alberta – the 300,000 b/d Kinder Morgan Trans Mountain Pipeline, leading to Vancouver and Puget Sound.
And so an important challenge for Canada in 2013 and beyond will be to move forward on pipeline projects that expand our access to Asian markets, including both a possible expansion of the Trans Mountain pipeline (bringing capacity up to 750,000 b/d), and a completely new 36" diameter, 730-mile pipeline called the Enbridge Northern Gateway, which eventually could transport as much as 850,000 b/d of diluted Alberta bitumen to a new marine terminal near Kitimat, British Columbia, for sale to Asian markets.
Construction of the Northern Gateway pipeline would provide a huge boost to the Canadian oil industry. But its chances of going ahead in its currently planned form in 2013 are very slim, for a variety of very all-too Canadian reasons – including bickering involving the federal and British Columbia government over revenues, massive opposition from aboriginal bands, and an extremely effective anti-pipeline campaign mounted by British Columbia's powerful environmental lobby. In fact, many analysts believe the pipeline will never get built, leaving Canadian oil producers largely hostage to the American energy market.
Stresses are appearing in Canadian public life not only over the question of what to do with our oil, but also over what to do with the money we earn from it.
Thanks to Canada’s “equalization” policy, billions of dollars are shuttled (indirectly) from the country’s richest provinces to its poorest on an annual basis. In recent years, this has meant that oil-rich Alberta (per capita GDP = about $78,000) generously subsidizes the welfare-state policies of an out-at-the-elbows Quebec (per capita GDP = about $43,000). This has created no small measure of rancor in the country, especially because Quebec's left-wing, environmentalist politicians have made a habit of attacking Alberta’s oil industry for its pollution and contribution to global warming, essentially biting the hand that feeds them.
At one point in 2012, Canada’s leading opposition politician, Thomas Mulcair (who is from Quebec), even declared that the oil sands were giving Canada a case of what economists call “Dutch Disease,” whereby high priced commodity exports cause the Canadian dollar to appreciate, thereby rendering our manufacturing industries uncompetitive in global markets. The remark was front page news for days, and continues to stick in the craw of many Albertans.
All in all, managing the oil file will be Canada's biggest challenge in 2013. Like a family that has won the lottery, we Canadians are delighted by our newfound wealth. But turning it into useful income has become unexpectedly problematic, due to our geography, fractured political landscape, troubled historical relationship with First Nations, and environmental focus. The fight between our squabbling regions and constituencies over the best way to proceed has only just begun.




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