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Canadian think-tank CEO: North America needs new energy pact
Gary Park Petroleum News Calgary correspondent
Canada should press to rewrite the North American Free Trade Agreement to incorporate a continental approach to energy development that ensures the cheapest sources of energy for the markets, says Jack Mintz, chief executive officer of the C.D. Howe Institute.
He said the negotiations could be part of a new trade pact with the United States and Mexico that facilitates greater trade, labor mobility and security within North America.
Speaking to the Calgary Chamber of Commerce on March 16, Mintz said the policy framework developed in the 1980s has been working well for the industry, providing a cheap, reliable supply of energy for consumers and generating a C$40 billion annual trade surplus for Canada.
However, signs have started pointing over the past two years to “new pressures that could have a significant impact on energy development,” he said.
The institute is a highly respected independent think tank based in Toronto. End of cheap energy prices, demand likely to outstrip supplies Failure by Canada’s federal and provincial governments to craft a new strategic framework for energy markets to deal with the pressures could “undermine economic growth,” he warned.
Leading the pressures is the “end of an era of cheap energy prices,” since oil prices bottomed out at C$18 per barrel in 1988 and natural gas reached its low of C$2 per thousand cubic feet in 1995.
Mintz said the outlook now is for “stable or rising prices,” with world oil demand likely to outstrip Middle East and Russian supplies.
The days of low gas prices are also over and the cheapest source of liquefied natural gas from huge deposits in Qatar will be priced no lower than C$4.50 per thousand cubic feet, he said.
As well, he said pressures stem from U.S. efforts to avoid importing Middle East oil in favor of imports from Canada, Mexico and other more politically secure countries, while demands for cleaner air and water in Canada will be an important factor among voters.
Given that outlook, Canada should secure the Mackenzie Valley pipeline to carry gas from both the Mackenzie Delta and Alaska; Mexico should open up its markets to Canadian and U.S. producers to help develop their resources at less cost; and all three countries should seek an agreement to “ensure a level playing field so that companies will allocate their scarce investment funds to develop the cheapest sources of energy first,” Mintz said. Canada needs new strategic framework Without a new strategic framework in Canada, “it would be very easy for Canadians to ‘kill the goose that lays the golden egg’ with bad policy,” he said, fingering the Kyoto Protocol as one example of a policy adopted without a full understanding of the implications.
Mintz also said it’s time for Canadian governments to take steps to ensure that taxes and royalties do not discourage energy production, including that from alternative energy sources.
He urged the federal government to accelerate a package of tax reform for resources companies that is scheduled to be phased in over five years.
Corporate taxes for other industries will drop to 21 percent this year, but oil and gas and mining companies will see their tax rate drop to only 26 percent.
In addition, Mintz noted that the current capital cost allowance for pipelines is based on a 50-year operating life, which is “inadequate if a pool of oil or natural gas is not expected to last more than 20 years.”
He argued that deregulation, tax reform and marginal cost pricing would also ensure that resources were adequately provided and consumers would conserve energy.
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