It turns out we have yet to reach peak oil, after all. And in this topsy-turvy world where the U.S. now produces more oil than it needs to import, it may be Prime Minister Stephen Harper's power that has peaked instead. Why? Because in his quest to build an “energy superpower,” Harper tied his political fate to the price of Canadian crude.
Harper won his long-coveted majority in May 2011, with a simple promise to energy producers: he would do whatever necessary to get their wares to market. Higher export prices would unlock deeper, more marginal reserves. And for the Tories, the resulting spurt of growth could pay for tax cuts, helping to paper over voters' concerns about environmental tradeoffs. But Harper's plan, like a runaway oil train, is going off the rails.
The day before the last federal election, Canadian heavy crude was trading at $82.87 a barrel. Since then the price has gone up and down, only to end up right back where it started. Thanks to fixed-date election laws he himself brought in, Harper has at most 20 months to fulfill his promise to energy producers — or they will find someone else who can.
If your profits depend on getting crude oil to saltwater, you need the right political salesman. Right now those companies are looking for someone who can reboot Canada’s relationship with First Nations, maintain trust with voters and ultimately secure social licence for development. On all three, Harper is poised to fail. His current troubles may be largely self-inflicted, but they were set in motion by events beyond his control.
In the middle of the last decade, a technological revolution in U.S. oil fields inverted the logic on which North America's energy infrastructure was built. Instead of refineries around the edge of the continent sending imported petroleum inland, it's the interior that is suddenly brimming with oil and gas. Eventually those fracked wells will see their production drop off sharply, but for now the U.S. is swimming in high-grade crude. Canada's oilsands, more costly to extract and refine, have lost their lustre in all but the hungriest energy markets.
Harper's decline likely began in November 2011, with a nasty surprise from Barack Obama. The President announced he would push back his decision on the Keystone XL pipeline — indefinitely, it turns out. That “no-brainer” lifeline to heavy-oil refineries on the Gulf Coast was supposed to be open by now, draining nearly half the daily output of the oilsands on its own. That November, Harper met with the commander-in-chief in Hawaii to convey his grave disappointment. “In fact he was furious,” reported Maclean's political editor Paul Wells.
According to Wells, “two days after the chat with Obama, at a meeting of cabinet’s priorities and planning committee in Ottawa, Harper handed out orders to a half-dozen ministers. Energy exports were the government’s new top strategic priority.”
Why? Because Harper knew his political survival depended on the price of Canadian crude.
One of the people around that table was Peter Kent, who began using his platform as environment minister to gut any laws impeding the energy industry — all the while championing Canada's “ethical” oil. Of course, if refinery operators had the luxury of caring about human rights, they wouldn't buy oil from the places they do. What they care about are price and quality. On both fronts, oilsands producers find themselves at a disadvantage.
Eventually Kent's rhetorical gymnastics wore thin, and the hapless former newscaster was dismissed.
Another cabinet colleague was Denis Lebel, transport minister and Harper's lieutenant in Quebec. On his watch, rail companies ramped up their shipments of crude, in an effort to circumvent the slow approval process for pipelines. Then the Lac-Mégantic disaster struck, killing 47 people and prompting a backlash by municipalities. A week after the flames were finally put out, Lebel was shuffled off the transport portfolio. A string of derailments since has only deepened public anxiety over oil trains.
Another minister at that 2011 meeting would have been rookie MP Joe Oliver, a career investment banker chosen to quarterback the natural resources file. Less than two months after Obama sent the team scrambling for other pipeline routes, Oliver launched his attack on British Columbia's “radical groups,” whom he implied were paid agents of shadowy foreign saboteurs. The episode galvanized grassroots opponents, adding friction to proposals across the country.
Seen through this lens, a pattern of events over the past two years comes into focus. The use of CSIS to spy on environmentalists and First Nations, on behalf of oil and gas companies. The use of the National Energy Board to stifle citizen input on project proposals. The use of the RCMP to break anti-fracking blockades at Elsipogtog. The use of millions in public money to buy ads for the energy industry.
With a four-year deadline, Harper bent the mandates of federal ministries and agencies to serve his “top strategic priority.” And yet it's doubtful any new pipelines will be under construction before the next election. Meanwhile, international energy markets are shifting. On all fronts, time is running out.
Strongman tactics tend to conceal fear and weakness.
Harper's weakness stems from the pact he signed with energy exporters, while his fear is that voters' perception of Canada's economic performance will come unglued from his political brand. The irony is that one may be helping the other come true.
As University of Alberta economist Andrew Leach points out, despite Harper's outsized focus on oil and gas extraction, that sector now makes up less than seven per cent of Canada's GDP. Since the Conservatives took power in 2006, corporate taxes collected from the oil and gas industry have fallen from eight per cent of the total to 4.3 per cent.
All that political capital spent, for an industry that doesn't even pull its weight. Meanwhile, December's job losses brought the unemployment rate up to 7.2 per cent. Consumer debt has surged, while the income gap has only widened. Even if Harper's pipeline dreams come true, the resulting spike in crude prices could easily create more losers than winners.
It's not true that a rising tide of oil would float all boats. But if the price of Canadian crude falls, so too will Prime Minister Stephen Harper.