The Fraser Institute

The Fraser Institute

October 23, 2006 06:00 ET

The Fraser Institute: Media Release; Solution to Energy Security Lies in Further Integration of Canadian-U.S. Markets

VANCOUVER, BRITISH COLUMBIA--(CCNMatthews - Oct. 23, 2006) - Canada and the U.S. could enhance North American energy security through improved access to supplies and further integration of the Canada-U.S. oil and gas sector, a new study from The Fraser Institute concludes.

"The solution to improved energy security is not found in nationalistic policies or environmental freezes, but through regulatory cooperation that opens and integrates markets," said Professor Alexander Moens, a senior fellow with The Fraser Institute, and co-author of Achieving Energy Security Through Integrated Canadian-American Markets.

"Canada is the largest foreign source of crude oil and oil products for the U.S. This success story developed over the past 20 years by allowing competitive market forces to displace various attempts at government intervention on both sides of the border."

For the United States, energy security is based on access to supply while Canada views energy security as access to markets, said Moens, a professor of political science at Simon Fraser University who co-wrote the report with Taymaz Rastin.

Although the oil and gas sector on both sides of the border has blossomed and integration has benefited both countries, the study suggests that the relationship could be threatened by the prospect of excessive environmental regulation and a narrow political agenda.

"In Canada, energy nationalism is not dead. The rising importance of Alberta's oil-sands may cause other regions to look to political means to redistribute the wealth or redirect the trade flows. High oil prices could induce governments to nationalize energy exploration or production," Moens said.

The report also notes that exploration and development of Alberta's oil sands poses some complex environmental challenges, as well as being an energy intensive process. This will likely lead to critics of the industry calling for ceilings or freezes on production, and excessive regulation and government intervention.

The report proposes several policy areas where governments can enhance the integrated market-based trade in oil and gas between Canada and the United States, noting that deregulation in the Canadian-American oil and gas trade did not mean the end or absence of regulation but rather, regulatory measures that were geared to optimize free-market exchanges.

The report also points out that asset allocation and investment should be left to the market but acknowledges government plays an important role in creating an optimal environment for investment.

"Despite past policy mistakes, the role of government is still critical. But government has to see its role as using market forces and providing targeted incentives for industry to invest in new technologies and additional capacity," Moens said.

The report recommends that federal and provincial governments focus on three areas:

1. signaling a long-term commitment to market-based solutions and removing policy uncertainties arising from environmental restrictions and First Nations land claims;

2. streamlining and consolidating regulations and regulatory procedures within the framework of an integrated Canada-US market; modernizing regulations and developing best practices in the exploration and production of unconventional oil and gas; and

3. providing market-based incentives for investment to overcome impediments to developing greater capacity and new technologies.

The report concludes with an extensive list of specific recommendations designed to improve energy security for both Canada and the U.S. Among the recommendations are:

- risk sharing in the production of heavy oil from the oil sands;

- streamlining the pipeline system and heavy oil refining capacity;

- developing long-term plans for the supply of natural gas that includes both more gas exploration and production in Canada in non-conventional areas and an integrated approach to Liquefied Natural Gas (LNG) imports to the continent; and

- maximize the use of technological innovation (such as CO2 burial and nuclear power) to reduce the environmental challenges posed by greenhouse gas emissions rather than impose caps on production.

Established in 1974, The Fraser Institute is an independent public policy organization with offices in Vancouver, Calgary, and Toronto. The media release and study (in PDF) are available at www.fraserinstitute.ca


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