Canada

The gas is sometimes greener

IAN URQUHART July 10 1978

Canada

The gas is sometimes greener

IAN URQUHART July 10 1978

Canada

The gas is sometimes greener

Canada’s total oil reserves were 469 billion barrels at the end of1970 while total natural gas reserves were 725 trillion cubic feet. A t 1970 rates of production, these reserves represent 923years’ supply for oil and 392years for gas. —Energy Minister Joe Greene,

June 2, 1971.

Joe Greene has long since moved to the comfortable obscurity of the Senate, but his intemperate claims linger on as a symbol of errors in judgment which haunt the federal government and the petroleum industry alike. In painting an excessively optimistic picture of Canada’s resources (the figures he quoted represented the ultimate, undiscovered potential for oil and gas, not proven reserves), Greene was trying to justify more petroleum exports to the United States. But scarcely three years later, during the so-called energy crisis of 1973-75, Ottawa and the oil companies said we were running out of oil and gas and would face shortages of both in the 1980s—unless we took drastic steps, such as quadrupling prices for petroleum. Canadians swallowed the higher prices, but also took down the FOR SALE sign on the remaining oil and gas. No new gas exports have been approved since Greene’s time and oil exports are to be eliminated by 1981.

Now, however, with yet another price hike under its bulging belt,* the petroleum industry says we once again face a surplus—even a glut—of oil and gas and should increase, not cut back, our exports to the fuel-hungry U.S. Within a decade, the petroleum industry has completed a dizzying, 360-degree turn, leaving Canadians wondering whom to believe.

The oil companies reply that the crisis of 1973-75 brought with it the seeds of its own recovery in the form of higher prices, which both encouraged the companies to look for more oil and gas and curbed Canadian appetites for the fuels. The result is a temporary surplus of oil and gas, an outcome few forecast during the crisis. “These forecasts were prepared in the light of then existing levels of energy consumption and rather discouraging exploration results,” says the Canadian Petroleum Association, spokesman for the major oil companies. “With the advent of higher prices for oil and gas, a surge of exploration activity in Canada has produced very encouraging results in the case of gas and some indications that the oil discovery rate could turn around.” The association adds a Catch-22 to bolster its case for more exports: If they are not allowed, the oil companies will

*Oil went up to $12.75 from $11.75 a barret on July 1, anda new gas price was to be announced later this month following negotiations between Ottawa and A Iberia.

have less cash to invest in exploration, and the country will run short of oil and gas as a result.

The oil companies used to issue such self-serving statements with relative impunity, but now they face a highly skeptical public and are taking what is, for them, a low-key, almost apologetic approach in their push for more exports. Says Imperial Oil President Jack Armstrong: “I know right now that, with all the variables that make up petroleum forecasting, what we are predicting today will be different from what actually transpires during the next decade. But you have to make your best shot according to the data you have and according to conditions as you expect them to develop.”

The National Energy Board (NEB), which must approve any additional exports of oil and gas, is no less sensitive to public opinion about past mistakes in forecasts and is moving just as cautiously. Before deciding on any new exports, the NEB is holding public hearings on the over-all supply of oil and gas in Canada. The oilsupply hearing concluded last month but NEB experts must evaluate the evidence

submitted by the oil companies before a report is issued in the fall.

The supply of conventional crude oil it so limited that it is entirely unlikely the NEB will approve more exports. If it does, the federal cabinet, which has the final word, will probably exercise its veto. The most that could be expected is an extension of the 1981 deadline for eliminating oil ex-

ports, a delay the Americans have requested. For, despite the frantic exploration activity of recent years, Canada’s oil reserves have been steadily declining (see graph). By the end of last year, crude oil reserves stood at less than six billion barrels, barely equivalent to nine years’ supply for Canada at 1977 rates of consumption. That figure does not include the Athabasca tar sands, where the Syncrude plant begins producing oil this summer and where another plant is being considered. Nor does it include most of the West Pembina oil field, where significant new finds could add as much as one billion barrels to reserves, and the Lloydminster heavy oils, subject of a take-over battle (see story on page 50). But these new sources of oil will only slow the downward trend, not reverse it.

Gas is a different story. Reserves have actually increased in the last five years to close to 60 trillion cubic feet, equivalent to 40 years’ supply for Canada at 1977 rates of consumption. And that figure does not include the 13 trillion cubic feet discovered to date in the Arctic islands. Suddenly, it would seem, Canada is floating on a bubble of excess gas. TransCanada PipeLines and two other companies are proposing major new exports of gas to the U.S. as a release valve. The alternative seems to be to let the surplus gas, which the Alberta government’s Energy Resources Conservation Board estimates will total 14 trillion cubic feet over the next four years, sit underground.

Federal Energy Minister Alastair Gillespie has a third option: sell more gas in Canada. The TransCanada system now ends at Montreal and Gillespie would like to see it extended to Quebec City and even the Maritimes to open up new domestic

markets. Such a move would, in Gillespie’s view, not only help solve the gas surplus problem, but also lessen Canada’s dependence on shaky sources of imported oil by eating into oil’s share of the energy market in eastern Canada. Says Gillespie: “Quite simply, we just cannot afford to let ourselves become too dependent on foreign oil sources. Their continuance is by no means assured.”

An extended gas pipeline would also give aid and comfort to federalists by making Quebec addicted to a Canadian product. Right now, gas accounts for just 6 per cent of energy consumption in Quebec— compared to 27 per cent in Ontario—because most Quebec needs are met by its own hydroelectric power and by imported oil. Quebec Energy Minister Guy Joron, in a white paper published last month, nevertheless endorsed the extension of the gas pipeline.

But the major oil companies do not see the gas pipeline extension as an answer to the surplus problem. Says Imperial Oil’s Armstrong: “This is, quite under-

standably, a politically appealing proposal. But, from the economic standpoint, parts of this proposal don't make very much sense. A reasonable case might be made, on several grounds, for extending the pipeline to Quebec City. But from Quebec City onwards, the economics get progressively worse.”

Armstrong and other oilmen are also worried about their refineries in Ontario, Quebec and the Maritimes, built to process imported oil. These refineries are operating at just 70 per cent of capacity now and, if the gas pipeline were extended and oil imports cut back, some might have to close.

Ottawa might consider more gas exports if they could be swapped to the Americans for future supplies of Alaskan gas when the Alaska Highway pipeline is finally built. But Alberta Premier Peter Lougheed. who is backing the oil companies’ push for exports, says there should be no conditions attached. However, Lougheed is trying to attach his own conditions by tying additional gas exports to trade concessions from the U.S. on Alberta’s petrochemicals and agricultural products. Then there is Ontario, which opposes both more gas exports and a gas pipeline extension because it fears its citizens will have to pay for the cost of construction. Ontario would favor cutting the price of gas—an obvious move with the supply exceeding the demand— but the province of Alberta would oppose any price cut.

Oil companies. Pipelines. Provincial governments. It is a bewildering array of competing interests forming an ever-shifting series of alliances before an increasingly suspicious public. It will take the NEB and the federal cabinet the best part of a year to sort it all out. Joe Greene, who understandably concedes today that his 1971 forecast was “overly optimistic,” does not envy them. “If it was purely a question of economics, you probably should export more gas,” says Greene.“But you can’t al-

ways do what’s best economically and survive politically.” IAN URQUHART