Even though Canada has the 10th largest economy in the world, it is losing about $18 to $19 billion in revenue annually due to being forced to buy crude oil at a high price and sell at a loss while struggling to expand production.
The difference in price, which is creating a significant drag on economic growth, between Brent oil imported into Quebec and Ontario and exported oil from Western Canada Select, is substantial – about $30 per barrel.
According to Jim Prentice, vice chairman of Canadian Imperial Bank of Commerce, the price gap “highlights the importance and potentially the value of pipelines in Canada that move our oil on an east-west axis.” He added, “That’s lost corporate revenue, government income tax, government royalties.”
It is estimated that, amid a shortage of convenient alternatives for oil sands bitumen, the losses may continue to persist for the next couple of years, and there are no advanced proposals yet to transport oil to the rest of Canada from Alberta to reduce costly imports.
Environmental hearings and increasing British Columbia opposition have held up the Northern Gateway project to the west coast, and the Keystone XL pipeline destined for refineries on the Gulf coast has been delayed as well by U.S. President Barack Obama.
Although oil-sands producers in Canada are ramping up and slated to more than double the output from bitumen fields in Alberta by 2025 to 3.5 million barrels a day, and production has risen over the last several years, the increase has not been sufficient to overcome the deficit. Canada is now ranked alongside Sudan and Mexico, as a net oil exporter with a current-account gap, projected to continue until 2017.
Despite these setbacks, Canada continues harbor aspirations on becoming the next energy superpower. The New Democratic Party opposed to pipeline installations is calling for alternative solutions, including refining bitumen in Canada as well as pushing natural gas as an energy solution. Residents are beginning to take to natural gas perhaps because of affordable rates offered by companies like Alberta Energy Providers (albertaenergyproviders.com).
The natural gas solution has paired widespread environmental concern with affordable rates and consumer incentives. Alberta’s total marketable natural gas production was 3.9 trillion cubic feet in 2011. Presently, the average Albertan household uses about 120 GJs of natural gas per year. This number is expected to go up if current trends hold. The natural gas solution is also expected to spread to other parts of Canada, though with less efficiency, as Alberta has one of the strongest natural gas infrastructures in the world.
Another solution proposed by some to Canada’s economic woes is diversification. Canadian macro strategist, Mazen Issa, of TD Securities in Toronto said, “Canada still exports primarily to the U.S….If you diversify it may be the case where you don’t end up on the short end of the stick.”
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