The case for a world energy market

Canada’s federal government has stated clearly that developing a Canada/U.S. partnership on energy and the environment is a priority. This idea finds support across the spectrum of opinion in Canada, creating common ground between environmental and energy interests. But what’s in it for the new U.S. administration?

Assuring the U.S. of our reliability as a supplier of energy is good. But this isn’t new and could easily be construed as an attempt by Canada to lock in its market access for natural gas, oil, electricity, and uranium – commodities for which we are already the number one supplier to the U.S. Signalling our willingness to partner on environmental management is also positive, but from a U.S. perspective it adds complexity to an extremely difficult domestic challenge.

Rather than focussing on our bilateral relationship, Canada’s strongest leverage on U.S. policy may in fact come from contributing to a broader international agenda where Canada and U.S. interests converge. Prime Minister Mulroney succeeded well with Presidents Reagan and George H. W. Bush by following such a course. More recently, our military mission in Afghanistan has gained us far more credit in Washington than any other Canadian initiative in the past decade.

Energy creates such multilateral opportunities. Canada can partner with the U.S. in promoting a stable world energy trade, investment and carbon management system that builds on energy markets rather than getting in their way.

The mantra in the U.S. is energy independence. It is a powerful sound byte yet impossible to achieve. North America will be dependent on imported oil as far into the future as we can see. Although the continent is virtually self-sufficient in natural gas, we also have access to world gas markets through liquefied natural gas (LNG) re-gasification capacity equivalent to over 15% of our domestic use. Even ethanol might be better sourced in places like Brazil if the objective were to find the most economic and environmentally preferable supplies. With our effectively functioning markets and flexible pipeline and storage systems, Canada and the U.S. can fulfil their energy needs strategically from either domestic sources or world markets. And of course we will be increasingly tied into a world carbon management system.

Clearly, Canada and the U.S. have a substantial and growing interest in a well-functioning world energy market. There is potential for cooperation in several areas, including energy markets, the yet-to-be defined carbon market, investment rules, northern development and technology. Canada has a great deal to contribute to the conversation if we decide to step up.

Canada has earned its place at this table. We have learned the hard lessons of the National Energy Program – how bad policy can wreak havoc on energy markets and sow interregional discord. We went through the tough political fight over energy in the free trade agreement. Many voices claimed in 1988 that the FTA energy chapter was a sellout of our sovereignty and our energy security. Twenty years on we have enjoyed unprecedented wealth creation and energy stability for producers and customers based on open markets complemented by North American trade and investment rules. We are a free market champion with the scars to prove it.

Meanwhile much of the world has lost faith in markets. The reaction to the recent financial meltdown (markets don’t work, let’s regulate) is piled on top of a longer trend away from open energy markets in non-OECD countries. Price management, state control of investment and energy assets and geopolitical market manipulation have become prevalent. Soon we may add ill-conceived carbon management systems to this witch’s brew.

The recurring natural gas price dispute between Russia and Ukraine, and its impact on European energy security, is a window on a world without solid trade and investment agreements. At a time when we can least afford such instability, the threat of this contagion of national self-interest is clear.

The United States and Canada have a fundamental interest in building a stable world energy market, not Fortress North America. President Obama’s visit to Canada is an ideal opportunity to begin forging an integrated approach that shapes international energy trade and investment rules, and develops mechanisms for cooperation on energy and carbon management that are necessary for those markets to work.

Pierre Alvarez, Chair, Canadian Centre for Energy Information,
Michael Cleland, President & CEO, Canadian Gas Association
Roger Gibbins, President, Canada West Foundation.

This is the first commentary in a three part series on national energy security. The series is based on a paper prepared for the recent North Pacific Energy Security Conference.

 

Recently, the Globe and Mail published an article by Canadian Centre for Energy Information Chair, Pierre Alvarez. The piece is based on a White Paper Mr. Alvarez wrote with Michael Cleland, President of the Canadian Gas Association and Roger Gibbins, President of Canada West Foundation. Another article by the same authors was published in the Edmonton Journal on the day President Obama visited Canada.