Canada is making long-term, multi-billion dollar, decisions about its energy future at a moment of global change. Geopolitical shocks, unstable supply, shifting demand, and changing investment patterns are reshaping the global energy system. This series looks at those forces, and what they mean for Canada’s economy and the choices now in front of it. 

The previous installment in this series made the case that a well-funded fossil fuel lobbying apparatus has worked to delay Canada’s energy transition and drive public sentiments toward oil and gas expansion. But politics and economics do not always agree. If Canada’s policymakers were to set aside the fossil fuel industry’s influence campaign and evaluate growth proposals on their own merits, Canada’s position in the global energy economy would argue against major, publicly-funded oil and gas expansion. 

This is because Canada is a high-cost, geographically constrained producer in a market increasingly dominated by competitors who are cheaper and closer to their customers. But, Canada does hold underutilized advantages in other sectors that are growing. 

The marginal producer problem

Not all oil is created equal, and Canada’s oil is among the most expensive in the world to produce. The vast majority (98 per cent) of Canada’s proven oil reserves are oil sands: bitumen mixed with sand and clay that requires resource-intensive extraction and refinement processes. As a result, oil sands are one of the most expensive forms of oil in the world to bring to market. 

It costs an average of US$57 (although BMO estimates that figure to be closer to $42) — and as much as US$75 — to produce a barrel of oil from oil sands, compared to an average of US$27 for Middle Eastern onshore production. Canada, ultimately, is a marginal producer of oil that sits atop the cost curve. This means that Canadian oil is among the first displaced by reductions in global demand or increases in supply competitors.

Canada has little to no influence over the price at which it sells its oil. Brent and West Texas Intermediate — two leading crude oil price benchmarks — are set on global markets and shaped by producers whose costs are a fraction of Canada’s. With OPEC increasingly opting to prioritize market share over short-term profits, high-cost producers like Canada are being........

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