Does Canada need a strategic oil reserve?

piepleineOne of the peculiarities of Canada is that it is divided between an oil and natural gas rich West and the oil and gas poor East.

It’s ironic. Ontario and Quebec consume the most oil and natural gas in the country, yet harbor politicians and voters who absolutely loathe Alberta which produces nearly 80 per cent of the country’s oil.

Even more ironic is that fact that the lack of pipeline capacity between the West and the East means we still import oil from the United States, Saudi Arabia, Iraq and Norway.

With world oil prices depressed, however, by the feud between Saudi Arabia and Russia, the cost of importing that oil has dropped and consumers there have not felt the consequences of the country’s lack of self-sufficiency.

That will not always be the case. It would be extremely short sighted of policy makers to believe that oil prices will forever be low. Demand for oil will continue to climb for decades to come and prices will not remain low forever.

All of which goes to the issue of energy security. Can the country afford to NOT take it’s security seriously?

What would happen to Ontario and Quebec should there be a disruption in supply from Africa or the Middle East?

Could we count on the United States, which supplies more than half our imported oil, to continue servicing us?

The dispute over the sale of 3M masks should give us pause.

In any event, one of the things being discussed in recent days is the country’s lack of a Strategic Petroleum Reserve (SPR) as one way of addressing the industry’s current woes.

Proponents of a national SPR argue that it would help Western producers struggling with low prices and a lack of profitability.

And as Albertans wait on action promised by the Trudeau government a few weeks ago, it is tempting to think that a national SPR would be a great boon.

As it stands, the country has about 60 million barrels of oil stored at refineries and tanks in Alberta. We have enough storage tanks and underground caverns to store about 95 million barrels of oil. Another eight million barrels of storage capacity is under construction.

Compared to the United States which has close to a billion barrels in storage, that is a piddling amount.

Canada consumes about 1.5 million barrels per day, mostly in Ontario and Quebec, so if worst came to worst, we’d be able to continue for about 40 days theoretically.

The trouble is that half the country is entirely dependent on the United States.

So there is little question that a national SPR would be of benefit to the country.

The problem is that bringing up the SPR to a 90 day reserve won’t happen overnight. Construction of a 500,000 storage tank takes about 18 to 24 months.

While a program of tank construction would be a boon to the construction and steel industries, it would do little to help the oil industry in the short term.

Basically, the industry needs help to survive until pipelines can be built.

In this respect, it’s worth noting that construction of the Montana portion of the Keystone XL pipeline began this week thanks to in large part to Alberta’s direct investment.

If the Trans Mountain pipeline can get built, the industry will be able to export millions of barrels more.

Again, though, these are medium term solutions.

What the industry needs now are bridging loans to keep it going until the pipelines are constructed.

What the country needs is an energy policy that recognizes its the short term, medium term and long term needs.

Ultimately, we need to be able to move oil and natural gas from the West to the East – from producers to consumers. That is how we build a strong, resilient economy.

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