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Adam Pankratz: Hey Liberals, an oil pipeline would have been good right about now

Oil soars to over $100 a barrel, but Canada is not benefitting as much as it should

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The folly of Canada’s last decade of energy policy is a never-ending saga for which the costs to Canadians and Canadian industry seem only to rise. As the price of a barrel of oil and LNG skyrocket due to American and Israel military action in Iran and its fallout, Canada should be sitting on a massive opportunity to benefit from soaring prices. However, a decade of neglect and underinvestment in pipelines and egress capacity sees us looking wistfully on as other nations, such as the Untied States benefit while we toil away for little gain.

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The simple reason for the LNG and oil spike is that Iran’s retaliation has effectively shut the Strait of Hormuz. A critical link in the world’s energy supply chain, connecting the Persian Gulf with the rest of the world, around 20–22 million barrels of oil, or roughly 20 per cent of global oil consumption, passes through the Strait each day. Qatar supplies approximately 20 per cent of global LNG supply, which also transits the Strait. The Strait of Hormuz is not an area which generally receives much attention from the broader public unless something is seriously off, so when you see those words populating your social media feed, you ought to know something is wrong in the world. Indeed something is very wrong: tankers are trapped and so is the oil and gas.

Adam Pankratz: Hey Liberals, an oil pipeline would have been good right about now Back to video

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As a result of the Strait’s closure, a huge portion of the Middle East’s oil and LNG production, which normally leaves via tanker, can’t go anywhere. The situation is dire. Early Sunday the price of a barrel of oil went negative on the “trapped” side of the Strait, meaning producers are paying customers to take the oil away, because they can’t sell it elsewhere. It doesn’t take a genius to know that this means producers will stop producing to save money, and indeed this has already happened. On March 4, Qatar shut down natural gas production, on March 7 the Kuwait Petroleum Company cut oil production and declared force majeure, an emergency contractual clause that allows companies to suspend obligations such as delivery when faced with uncontrollable events such as war. On March 8, it came to light that Iraqi oil production had fallen from 4.3 million barrels per day to 1.3 million. It is anticipated that more companies and countries will cut production and declare force majeure in the days to come.

This is all a catastrophe for the world energy markets, which were already relatively tight. In response to the situation the price of a barrel of oil has already gone up over $20 a barrel in the past two weeks. Sunday afternoon, the price of both Brent Crude and WTI — both key global oil benchmarks — went over $100/barrel, and there are signs this will slow down, unless the Strait of Hormuz is immediately re-opened.

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However, there ought to be more opportunity for Canada. While Canadian producers still benefit from higher oil prices for their existing production, the Canadian oil and gas industry ought to be benefitting more. Our failure to build pipelines to access markets other than the United States will have huge financial implications.

By deluding ourselves that “there was no business case” for LNG or that the world would not want more Canadian oil, we have literally cost ourselves billions of dollars. This should be a national scandal. While the current government has tried to reverse the failed policy of the past, so far nothing has actually been built or accomplished.

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Looking back, recent years and decisions make for dark reading. When Germany came to Canada in 2022 looking for LNG we pushed them away. Where did they go? Qatar, that’s where. That Qatari LNG to Germany is now trapped as Qatar has been forced to shut down LNG production. Do we not believe Germany and Europe would rather get LNG and oil from Canada rather than from a clearly much more unstable region like the Middle East? Of course they would, but we were too myopic and foolish to get out of our own way to build the infrastructure we need to get our most valuable resource to market.

In the last 10 or so years Canada has made policy mistakes that have caused the country to lose billions of dollars, by turning away from economic prosperity in favour of failing battery plants and other unprofitable green energy fantasies. Politics over economics has cost us dearly, we cannot miss the opportunity and the message again. Build the pipelines and get our oil and gas to market.

Adam Pankratz is a lecturer at the University of British Columbia’s Sauder School of Business.

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