I hit a time warp last Friday.
The morning was progressing, as all mornings seem to in this current sheltering-in-place reality. I was scanning headlines of a couple of online newspapers I believe mostly still do news—whatever that means these days—studiously avoiding 99.9 per cent of stories about the pandemic. Avoiding those means I can consume virtually all the papers in about 10 minutes.
But then... then... I had to check the calendar. Had April Fool's Day snuck up on me? Was it already the first? What? Only the 27th of March? How could that be?
My temporal dislocation was compliments of Alberta's premier, Jason "Thumper" Kenney. I had to read the Globe and Mail article twice to make sure it said what it said. Having always been a pugnacious free marketer, Thumper was advocating a cartelized, socialized, transnational-energy program the scope of which would have made Trudeau The First blush.
Thumper wants Alberta to hammer out a joint oil strategy with the U.S., an OPEC-West if you will, to fight the current production war engaged in by Saudi Arabia and Russia. Naturally, it's a war Alberta and the U.S. would lose in a free-market-for-all battle generally favoured by conservatives. But Thumper's secret weapons would be—hello, Mr. Trump—tariffs on imported oil and government bailouts, the new "free" market strategies of born-again Keynesians.
According to Thumper, what's going on is "predatory dumping" on the part of the Saudis. Generally, predatory dumping occurs when one country sells its product to another country at a price below the cost of production in order to destroy that country's competing industry. But under the New Religion definition, it is apparently any trade where a country sells its product for less than the purchasing country's ability to produce the same product.
For reasons lost in the haze of geological time, Saudi Arabia can produce a high-quality form of crude oil for less than $9 per barrel. The current market price for that oil is hovering around $20 per barrel. No dumping there.
Alberta's form of oil was trading around $8 per barrel earlier this week. Production costs in Alberta seem to range from around $21 per barrel—Canadian Natural Resources Ltd.—to $28.55 for Canada's largest integrated oil company, Suncor Energy Inc., as reported last month.
Math is hard... but it isn't that hard.
Faced with those numbers, free-market capitalists would suggest severely curtailing production in Alberta. Thumper rejected out of hand a government-ordered production cut back. Much as he recently rejected, out of hand, addressing Alberta's budgetary problems by imposing a sales tax, a treat enjoyed by all Canadians who don't live in Alberta. Busy hands, busy hands.
Of all the reasons he might have put forth and all the strategies for protecting Alberta's energy sector, a North American cartel is quite possibly the weakest, most-lame proposal imaginable. For starters, the U.S. industry would eat his lunch, even assuming they'd buy into the plan to begin with. They have a production cost advantage and they are currently the largest consumer of Alberta's product, which they buy at a cheap price. Where's their motivation?
Playing on lessons we are beginning to learn from the pandemic, a stronger case could be made for Canada finally adopting a strategic, oil-reserve program. What? You didn't know Canada doesn't have one?
This country is the fourth-largest oil producer in the world. It is also among the least energy-secure countries. Blame it on geography, population and a political system long on provincial and short on federal authority.
The International Energy Agency is an intergovernmental group formed after the 1973 oil crisis. It was established to hash out ways to counter disruptions to the world's oil supply. It has since broadened its scope to embrace alternate energy and environmental protection.
In 2001, the 28 member nations agreed it was a good idea for countries to have a 90-day strategic petroleum reserve, something a number of countries have had since well before the agreement. An exemption to this reserve was granted to Canada, Denmark, Norway and the U.K. since those countries were net exporters of petroleum products.
Denmark and the U.K. established their own reserves. Seemed like a good idea. Norway—why is it always Norway who seems to do it right—didn't bother because they manage to produce and store enough to meet the country's entire demand. Canada chose not to largely for economic reasons: the cost would have been too high and there was no viable way to establish sufficient reserve capacity for Western-produced oil in Eastern Canada.
There still isn't. The last proposal to build a pipeline from Alberta to Eastern Canada was declared dead in 2017 with the Quebec premier delivering the coup de grace.
Don't get me wrong. I have never been and likely never will be a proponent of Alberta's oil and gas industry and the province's stubborn determination to continue to tie their economic well-being to that single industry.
But today's reality casts the issue of strategic reserves in a more glaring light. Like many other countries in the world, Canada is learning how important it is to make and/or store some things at home. Medical equipment, and the lack thereof, is top of mind right now, when the world is clamouring for scarce supplies of ventilators, masks, gloves and virtually every other item necessary to fight the good fight and countries are competing against each other to get their hands on them.
Food security is likely to become an intense topic of debate when spring turns into summer and Canadian farmers begin to wonder where they're going to get the labour to harvest crops.
In the hierarchy of needs, shelter ranks pretty high. In Canada, heat ranks almost as high since shelter only goes so far at staving off the worst aspects of winter. It will always be cheaper to import oil for Eastern Canada from the Middle East. But it might not be the wisest course of action.
Perhaps one of the changes to come out of our collective experience with a global threat will be a renewed interest in exploring what it might take to counteract an even more paralyzing shutdown.
Or maybe this is all just an April Fool's joke.
