Ukraine’s shooting war has been coming for weeks. Russia politely delayed its attack until the end of China’s winter Olympics to maintain at least one big friend after the missiles were launched. The price of oil has spiked. Supplies and costs of multiple essential commodities are uncertain.
Canada’s economy is in tough shape. Supply chains are disrupted. Inflation has spiked, interest rate hikes are assured. Government deficits are through the roof. Everybody is learning that Russia is a major supplier of everything the world needs from oil to metals to wheat.
Where and how this ends is unknown.
It has been almost 50 years since oil became a geopolitical weapon. That’s when OPEC cut off crude supplies to the US and the European countries that supported Israel during the Arab-Israeli war of 1973/74. Over the next seven years the price would rise by a factor of ten, from $3 to $30.
This was possible because supply and demand were tight, and the major suppliers of low-cost oil in the Middle East, Africa and South America had very different worldviews than customers in Europe and North America.
The economic impact was devastating. Skyrocketing oil prices precipitated a recession, high inflation and double-digit interest rates. It was coined “stagflation,” where prices rose and the economy went nowhere.
Security of supply became a foundation of energy policy. Ottawa and Ontario invested directly in oil sands development. The Liberal government demanded a pipeline from Sarnia to Montreal to guarantee Quebec access to western oil. Gas exports were restricted. The National Energy Program dispensed cash grants to companies for oil exploration.
It was ten years before oil markets stabilized. Demand was flattened by high prices and a new generation of Japanese fuel-efficient cars. New production from the North Sea, Alaska’s North Slope and Alberta’s oil sands shrank OPEC’s grip on the market. By the mid-1980s oil prices collapsed and didn’t recover for 15 years.
Early this century oil prices began rising driven by strong growth in Asia and declining non-OPEC supplies. From 2000 to 2008 WTI rose from US$25 to US$140. It dipped briefly during the world financial crisis, then from 2010 to 2014 it averaged US$90. Oil fell sharply in 2015 through 2020 mainly because Canada and the US had added 10 million barrels a day of new production from oil sands and shale oil.
Without even understanding what they were doing, Canada and the US vastly improved global oil supplies and kept a lid on prices for 14 years.
But western energy security was doomed. For years North America and Europe have chosen to demonize fossil fuels. Lulled into a false sense of security by low prices and significant supplies without geopolitical risk, the public debate in Canada, US and Europe switched its attention to climate risk.
Fossil fuels had to go. The future impact of carbon emissions on the climate was so awful that the cost of not replacing fossil fuels tomorrow was much greater than the cost of living without them today. The relentless barrage of climate catastrophe predictions terrified a generation of voters.
Seeing where the votes were, politicians responded accordingly. Expressing deep concern about the continued use of coal, oil and gas became a badge of honor. And a winner at the ballot box.
You know the rest. By 2015, killing Northern Gateway was a Liberal campaign pledge. Barack Obama stopped Keystone XL the first time that same year. Attempts to build Energy East were politicized from the start, led by politicians in Ontario and Quebec. Bill C-69 created a politicized consultation process for major projects so unpredictable nobody would ever build anything. Bill C-48 assured no new access for Alberta oil to the north Pacific coast.
Natural gas was next. Ten years ago, the opportunity for Canada to enter the global LNG market looked fantastic. Only one project is under construction. Quebec denied Europe LNG from its shores last summer. Only a week ago another attack on the Coastal GasLink pipeline caused millions in damages.
Also contributing was the fossil fuel divestment movement and its various derivatives. It started with oil sands and coal, then expanded to everything through ESG investing.
As the west virtue-signaled away its energy security, Russia turned into a fossil fuel export powerhouse with Europe as its best customer. Russia supplies Europe with 41 per cent of its natural gas, 29 per cent of its oil, and 47 per cent of its coal.
Therefore the “war” between Russia, NATO the rest of the world is one in where the energy supplies to Europe must continue. Because it has no options except catastrophe.
The western response is economic sanctions. Except the ones that really hurt. Like stopping the purchase and delivery of Russian fossil fuels and other key resources to Europe and other buyers. And stopping the continued flow of cash to Russia to pay for them.
The bad guys are intentionally using their significant oil and gas exports as a geopolitical weapon for nefarious purposes.
The good guys like Canada have been intentionally withholding new oil and gas supplies and exports to save the world from climate change.
Canadians must rethink energy policy. The humanitarian approach to global peace and security is to produce more oil and gas, not persecute it.
David Yager is an oilfield service executive, oil and gas writer, and energy policy analyst. He is author of From Miracle to Menace – Alberta, A Carbon Story.
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