Politics and the Oil Sands

Last week a firestorm of political jousting occurred after NDP leader Thomas Mulcair suggested that Alberta oil exports raise the value of the Canadian dollar, thereby negatively hurting export industries in other parts of the nation, particularly Ontario and Quebec. The Conservatives were quick to slam the NDP and Mulcair with Tony Clement, President of the Treasury Board, stating oil sands development intervention would “jeopardize thousands of jobs across the province of Alberta and across the country, and thousands of new ones as investment dries up.” A few months prior Alberta Premier Alison Redford and Ontario Premier Dalton McGuinty got into a similar clash over McGuinty suggesting a very similar idea, that an inflated Loonie was killing manufacturing in his province. The issue of a high dollar is often dubbed the “Dutch Disease” or the “Resource Curse”, whereby natural resource exports/exploitation inflates the domestic currency resulting in the decline/death of manufacturing, the most notable example occurring in theNetherlandsin 1970.

It’s clear that a very divisive issue exists; however the oil sands industry generates spinoff development and jobs, not to mention the royalty revenues which fund transfer payments to provinces such as Ontario and Quebec. With the Canadian dollar trading above or close to parity with the USD for a prolonged period now its certain that manufacturing has been affected, to what extent is more difficult to measure. With that said one positive impact is that exporting industries will have had to undoubtedly find productivity or cost improvements in order to stay competitive in the current environment. Canadian manufacturing may be leaner, but certainly stronger with respect to our global peers.

With the regards to the development of the oil sands it will undoubtedly continue but Canada should aim to export the most value added resources it can. This means refining more product ourselves and finding alternative markets in which to sell it; outside of the already saturated markets of the U.S. Midwest where Canadian oil and NGL’s are being steeply discounted due to their oversupply. The pipeline debate is directly linked to this and will need to be balanced with environmental concerns. If there is one drum Mulcair should be banging on it is not the question of oil sands development but rather the manner of oil sands development, as most polls suggest all Canadians’ are concerned with its impact. The environmental impact of the oil sands is impossible to deny and with recent modifications to the Fisheries Act by Stephen Harper and the Conservatives to expedite pipeline approvals and project development timelines Mulcair would have gained more brownie points by centering on the ethics of this amendment. Rather than appearing uninformed in the energy debate, Mulcair would have presented a more balanced approach to development, something which may just have resonated with Canadians.

Want to know more? Check these stories out: http://www.theglobeandmail.com/news/politics/john-ibbitson/no-room-for-centrist-compromise-in-a-left-right-split-canada/article2445923/

http://business.financialpost.com/2012/05/28/the-re-education-of-thomas-mulcair/