In front of the endless rise in oil prices, the United States and other world powers released 60 million barrels of their strategic reserves last week. Canada, the world’s fifth largest oil producer, cannot follow suit because it has no strategic reserve. Should it be one? The question divides.
Canada is one of the few countries that does not have such a reserve. Since its creation in the 1970s, the International Energy Agency has required all states to hold a reserve of oil to deal with an interruption in supply. The reserve must correspond to at least 90 days of oil imports.
Canada, like Mexico and Norway, does not have to meet this obligation because they are net oil exporters.
Securing supply in Canada
Even without an international obligation, Gordon Laxer, one of the founders of the Parkland Institute, a nonpartisan economic policy research center at the University of Alberta, believes a reserve would be a wise choice to ensure Canada’s energy security.
If western Canada produces and exports oil, the east must import large quantities, underlines this professor emeritus of the University of Alberta. In 2020, regarding 40% of crude oil used by Canadian refineries was imported, mostly from the United States, according to the Canada Energy Regulator.
These imports leave Canadians in the Atlantic region and part of Quebec vulnerable to a supply crisis.says Gordon Laxer, who wrote a report on the subject in 2008.
According to him, Canadian energy policy has always been built on a North American vision instead of meeting the needs of Canadians first.
A strategic reserve might also benefit Alberta. In 2018, due to the lack of space in the pipelines and a too low price of Alberta oil, the NDP government had to ration the production of bitumen.
In an op-ed published around the same time, former MP Brian Jean encouraged the government to go further and create a strategic petroleum reserve to use excess production.
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Think regarding it, Albertans might benefit from a government that buys oil cheap and resells it when its price is high.“, he wrote.
The provincial research agency Alberta Innovates funded a report on the feasibility of such a reserve. According to the authors, the idea would have many positive effects such as stabilizing production levels, which would make royalty income less fluctuating and stabilize employment in the sector. About 10 million barrels might be stored in Alberta’s salt caverns at an estimated cost of $630 million in 2019.
The report had no follow-up.
Very limited effects
According to the dean of the faculty of administration and economist at the University of Alberta Joseph Doucet, the barriers to the establishment of such a reserve are too numerous for very limited effects on the market.
© Emilio Avalos / Radio-Canada
Joseph Doucet emphasizes that strategic reserves are founded to manage crises and not to control oil prices.
In recent years, the United States has used its strategic reserve to try to influence price volatility: fill the reserves at the start of the pandemic to compensate for the collapse in demand and empty them to temper the rise in prices.
But that was never the primary objective of these reserves, and in either case, these actions did not have the expected effect on the price, as Joseph Doucet recalls.
According to him, the price is an important signal for the consumer to adapt his behavior.
Gordon Laxer agrees. Although he believes that the creation of a strategic oil reserve should be a short-term solution, he does not see it as a way to influence prices. The weight of the Canadian reserve would be too weak on the international market. He also stresses that this reflection should be accompanied by a discussion on energy conservation, less dependence on oil and more renewable energy».
Joseph Doucet adds that, politically, establishing such a reserve program might be difficult.
If we wanted to create a Canadian reserve to protect ourselves when it is very high, we would encounter a problem similar to what the federal government encountered with the National Energy Program. […]Canadian producers, including the governments of Alberta, Saskatchewan and Newfoundland, would raise their handshe believes, referring to the fact that these governments would not want Ottawa to interfere in matters of natural resource extraction.
Faced with the crisis, the Premier of Alberta, Jason Kenney, prefers to insist on the importance of building pipelines to export oil and alberta gaswhether to Eastern Canada or the United States.
