Thank you for inviting us here today. For anyone who is unaware, the Conference Board is a non-profit think tank based here in Ottawa.
I was asked the question, “What is our export market diversity when it comes to energy?” before I came here today. The simple answer is “None.”
We export 70% of our oil production, 60% of our natural gas production, 7% of our electricity—all of it to the United States. We have one buyer for all of those products.
Now we also import a lot of those products. For example, much of the oil that's consumed in central and eastern Canada is imported. We import natural gas products, which are used as an eluent in the oil sands industry in Alberta. We are importers as well as exporters, but we are significant exporters of all of those energy products.
The system has worked until recently. What we've seen in recent years, the last couple of years in particular, is technological changes fundamentally altering the supply-demand relationship for energy in North America—oil sands development, horizontal drilling, fracking in shale oil, shale gas. There's been a big increase in the supply of energy in North America, but demand has been relatively flat. The end result has been lower prices for our energy relative to world benchmarks.
Why would it be desirable to diversify? First of all, we'd be able to take advantage of those price differentials. Let's just put some figures around this. Right now, the price of Brent oil is about $100 a barrel; the price of oil, West Texas Intermediate, in the U.S. is about $88 a barrel; here in Canada, Western Canadian Select is $72 a barrel.
Quality differences account for part of that, but a big part of it is that we have one destination for all of our exports, and that's the U.S. midwest. It's not even necessarily going to all of the U.S.; it's really just going to one fundamental location in the United States.
In the case of natural gas, prices are often two to three times what they are here in North America, if we look at markets in Asia or Europe. This is translated into billions of dollars of lost profits, lost tax revenues, lost royalty payments for our governments.
It can also have a negative impact on our investment and job creation in the energy sector. Just to give you an idea, drilling activity in natural gas here in Canada is now about 90% below its peak levels of activity. The low prices are having a definite negative economic impact on what's going on in our energy sector.
Another reason why we would want to diversify our markets is to reduce market risk. Demand for energy in North America is pretty flat right now. We're not seeing a lot of growth. But that is not the case worldwide. Emerging markets are seeing significant growth in energy demand. If we had access to those markets, we could take advantage of that growth.
The third reason to want to diversify our export markets is policy risk. The U.S. is our friend; they are our neighbours, but right now we're captive to their policies. Probably the best example of this is the proposed pipeline to the United States gulf coast, the Keystone XL Pipeline. There are other examples as well.
Basically, more customers mean more bargaining power, more options in what we can do with our energy products.
How do we achieve export market diversity? It's deceptively simple. We build the infrastructure that's required to get our products to other markets. But it's easier said than done. Basically we need to reach tidewater. If we can get our products to the ocean, we can ship them pretty much anywhere in the world.
In reality, as I said, it's easier said than done. In terms of electricity, it's really not feasible. We have one neighbour. Undersea cables are expensive. Our potential customers are far away. It's not really feasible.
With natural gas, it's possible. It's likely. We have several potential projects under development in B.C. right now to export liquefied natural gas from Kitimat, B.C., but those projects are still years away and they're not definite yet. We still haven't necessarily gotten all of the pieces in place for those projects.
In the case of oil, it's a necessity. Given the oil sands projects that are on the books right now, that are expected to be developed over the next 10, 20 years, you're talking about oil sands production doubling from their 2012 levels by 2020, and tripling by 2030.
Where is that oil going to go? There are potential projects already in place—the Keystone XL project that I mentioned, and the potential for a west-east pipeline here in Canada. But to help give you an idea of how much oil we're talking about, even if both of those projects are developed, that would still only account for about half of the total expected increase in oil sands production. We need to find other ways to move that oil.
We can do such things as move it by rail. That's something many rail operators are working with right now. But it has limitations; I've seen upward estimates that we may be able to move 800,000 barrels a day using rail. That's only about a quarter of the total increase we're talking about over the next 15 or 20 years, so essentially we need to find a way to move oil to market, if we're going to see the development of that product over the years to come.
Thank you.