Wake Up Canada – You Are Getting "Proportionately" Screwed!!

The recent controversy during the Democratic campaign battle between Senators Obama and Clinton has now brought renewed focus to the North American Free Trade Agreement (NAFTA). Sadly, this focus has revealed the dark side of NAFTA and a movement in Canada is now growing to have NAFTA re-examined.

At issue is the portion of NAFTA pertaining to energy. Article 605 of NAFTA prohibits Canada from lowering its share of natural gas exports to the USA relative to the most recent 3 year period. No problem you say? Canada has lots of natural gas you say? Think again. The Province of Alberta has only 8 years of proven gas reserves left. Canada as a whole according to the Oil and Gas Journal has proven reserves of 57.9 trillion cubic feet left – enough for 9 years. True, the experts do say that Canada has the potential to unlock many more reserves from the depths of the earth, but the proof of that is in the pudding as they say. Plus, even if these new reserves can be found, getting them to market may prove tricky given the recent squabbles with First Nations groups over the MacKenzie Valley Pipeline to cite just one example.

So what are the implications? With Canada currently exporting 60% of its Natural Gas to the US, the future looks grim. If production of gas in Canada starts to tail off over the coming years, we will still have to export 60% of the total output. Bottom line – Canada is going to get screwed in its ability to furnish enough Natural Gas to meet domestic demand unless some major new finds are made. Now it is clear why the recent hint of a shale gas deposit in Quebec sparked such a violent land staking rush as Canadian energy companies practically tripped over each other to claim a piece of ground before US majors such as Forest Oil could claim more land.

OK, so maybe Canada should just build some LNG plants and import cheap gas from overseas. Well, it's not quite that easy. The Province of Quebec would dearly love to build 2 LNG plants. However, by using imported gas, Canada in theory would have more domestic gas available to export to the USA. Any increase in exports would be "locked in" under NAFTA and Canada would be beholden to provide this increased amount forever going forward.

OK, so what of Oil? Well, proportionality applies here too. Canada currently exports 50% of its oil to the USA. Any new pipelines being built to move tar sands oil to the USA will increase the proportion and Canada will be locked in to that proportion going forward. For example, a single 450,000 barrel a day pipeline being built would increase Canada's proportion to 55%. If the proposed (and now approved) Keystone and Alberta Clipper lines get built to move another 1.4 million barrels a day south, the proportion will rise to 65%. Now, here is where it gets real scary. NAFTA Article 605 clause (C) says that disruption of normal channels of flow will be prohibited. That is, even if Canada wanted to scale back on its export proportion it would be prevented from doing so.

And what would happen in times of crisis you ask? Like if Canada was unable to source crude oil from the Middle East, for example? Well, NAFTA Article 2102 says that in times of crisis Canada essentially could take action to stop exports to the USA. But, another Article, 607, puts a finer point on this and spells out that Canada could only curtail exports to support its military or curtail exports if it was involved in armed conflict. Well, Canada does not really have a military so to speak, unless you want to count a few leaky submarines and a handful of decades old helicopters. So, NAFTA wins again. The Oil will flow south to the USA no matter what.

This is not a simple story to expound on. If what you have just read intrigues you, please make it a point to read the entire report by the Parkland Research Institute. You can find it at the following website:

http://www.ualberta.ca/PARKLAND/research/studies/OverABarrel.pdf

Canadians have been kept in the dark for a long time on the energy issue. Thanks to the Obama/Clinton toss up over the NAFTA agreement, focus has now been