Energy East, West or North: Market diversification Canadian economic security

Energy remains a divisive issue in Canada. On the question of production and distribution, the positions of various stakeholder range from “dig, baby dig” to “leave it in the ground”. Between those two irreconcilables solitudes, lies a range of other constituencies with varying opinions. One thing is certain; Canada is home to diverse energy resources in virtually every region. Resources include oil, LNG, coal, biofuels, and uranium as well as hydro-electric potential. The world’s fifth largest energy producer is also amongst a handful of energy exporters in the developed world.

Canada also has the geographic burden of being surrounded by water on three sides and sitting on top of the world’s second largest energy consuming economy. That created a natural disincentive to market diversification when an energy thirsty monster
to the south was willing to soak up Canadian production, particularly when it came to oil and gas. By comparison, other oil producing nations such as Norway, Russia and producers in the middle east had a riches of trading partners.

Setting aside the question of whether Canada should continue to develop and export its energy resources, there are many economic facts that are not in dispute. In 2015, energy sector accounted for 10% of Canada’s GDP. As the fifth largest oil producer in the world, Canada also
imported oil worth over $26 billion dollars. Canada’s energy sector (direct & indirect) accounted for over 950,000 jobs middle class jobs in 2014. That figure is of course now lower following the collapse of oil prices in 2015.

The proponents of market diversification rely on this data to support construction of pipelines to eastern Canada as well as to the west coast to open up Asian markets. Pipeline detractors argue that diverting investments to green jobs will replace these jobs and generate new revenue for governments. There is no doubt that Canada needs to invest in sustainability and the green economy. One often cited example is the retrofitting of existing buildings to generate energy consumption savings. They acknowledge that this shift will require significant retraining for affected workers.

Pipeline advocates argue that “Canada’s energy markets can create new jobs and economic growth from building infrastructure, improving energy security and helping to obtain maximum value from resource production and to increase value-added upgrading”.

Pipeline detractors point to the environmental costs and risks associated with pipelines. They advocate a transition plan that would replace energy jobs with a green economy. They argue that further investment in pipelines will just extend Canada’s dependence on a sector that imposes significant environmental costs.

The transitional challenge for the Canadian economy is multifaceted. In the foreseeable future, it is most improbable that global dependence on fossil fuels will diminish to the point that it is no longer viable for Canada to develop any part of its oil sands resources. A complete shutdown is not in the cards.

Second, the emergence of the green economy is a slow evolving phenomenon. There is absolutely no evidence to support the contention that Canada stands on the cusp of creating close to a million green jobs that yield the kind of incomes enjoyed by workers in the energy sector. That is, well-paying middle-class jobs that support workers and their families.

Thirdly, there is an enormous investment gap. The energy sector advocates for pipelines for market diversification as it has the investment dollars it is prepared to use
for new projects if it has avenues to open up new export markets. Those are strongly vested investment interests and perfectly legitimate in a free market system.

Lastly, retraining tens of thousands of workers will require time, resources and a well-executed plan delivered in multiple locations across the country. None of these are in place. Neither
industry nor governments have committed to allocate the magnitude of dollars that will be required. Time is a critical factor if displacement and alternative opportunities are to align.
And on a national scale, a plan has yet to be considered.

There is considerable debate about the viability of a green economy as an alternative to the conventional fossil fuel industry. The debate is not whether there are viable alternatives to Canada’s existing energy sector; the question is one of timing and of the extent of investment
required to phase out fossil fuels.

The practical reality is that proposed transition plans are neither funded nor aligned to accommodate displaced energy sector workers without damaging delays and periods of unemployment. The energy sector is being asked to forego certain jobs for the promise of green jobs that appear distant.

There is no doubt Canada should invest in a green, sustainable future. The trouble is no one is funding that future. Absent significant investment and a thoughtful, well timed transition plan, stopping investment in market diversification will necessarily lead to job losses for real people whose families and communities depend on those jobs. With the decline in oil
prices, Canadian workers are already suffering.

The instant problem remains that Canada has a resource with global demand but one it can only sell regionally. From a relatively short-term economic perspective, there is a strong economic case to be made for market diversification. If Canada is to produce oil, Canadian oil needs a market other than the United States.

That leaves two choices; move oil by rail or by pipeline. The former involves significantly more risk than the latter. As Canada engages in the great pipeline debate, it is almost certain
more investments in existing and new pipeline infrastructure will come. To
expect otherwise is both impractical and a case of denying fundamental economic realities.

Manitoba’s skilled trades and construction professionals are as conflicted by this debate as any other Canadian. They have an equal interest in their economic well-being and the environmental health of the planet their children will inhabit. They have a vested interest in building a certain and secure economic future. They do not control what is built but they also
understand economic imperatives that result in capital flowing to some sectors
and not others.

In simple terms, they will build whatever is funded by government and industry. In the short term, capital will continue to flow to the energy sector in greater amounts than it will
to the green economy. If that is the case, Canada needs to develop an intelligent plan to fully fund the transition from our existing resource base to emerging alternatives of the future.

That transition requires careful nurturing and a policy framework that assures the safety of Canada’s pipeline network. The two solitudes will have to reconcile their differences to work towards realizing a future that makes Canada a global leader in sustainability.

Perhaps using our existing resources to fund an alternative future is the only viable option. Manitoba’s skilled workforce, along with half a million colleagues across Canada, stands ready to work with what we have to create the future we desire.

Originally Published: Manitoba Building Trades Yearbook, August 2016

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