What’s a “Fair Price” for Canada’s Oil? And What Happens if We Get it?

It’s a phrase that has wafted up from the oil sands to the airwaves. It pops up in speeches by politicians and editorials by journalists: A “fair price” for Canadian oil. The key to this, we are told, is pipeline access to “tidewater” (another marketing term adopted by media and government).

The basic argument goes like this: A barrel of oil sands crude currently trades at a lower price than other global oil benchmarks. That price gap means Canadians are losing money on every barrel sold. Access to world markets will fetch higher prices, elevating our collective prosperity.

It’s a persuasive story, tickling the part of the brain associated with loss aversion. No one wants to bleed money day after day. At the same time it paints a picture of one nation, our fortunes rising and falling in unity. It’s good politics. But the reality is more complex. As individuals and businesses calculate whether the risks of these pipelines outweigh the rewards, three broad trends should be kept in mind.

First, what kinds of energy do those global markets want? Second, who can get it there at the lowest price? And most importantly, who wins and who loses if the price of Canadian oil climbs? The answers point to 2014 as a crucial year in the pipeline battle. That’s because the window in which these projects are viable may be closing faster than we think.

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oil price differentialsImage courtesy of Kirsten Smith, University of Alberta


  1. Tracy said:

    Your article mentions the U.S. moving toward energy independence. It would seem that the material they are extracting is becoming harder to get at. Will this not lead back to “dependence” when they run out again? ie: all the easy stuff is already gone…

    • Hard to predict. U.S. domestic oil production fell steadily from 1985 to 2008, before new technology enabled a dramatic surge.

  2. Pretty much spot on, Kai, although I think you’re misinterpreting the impact of an end to the export ban. My understanding is that it would actually be positive for Canadian crude, since those refineries would be able to feed global demand rather than just domestic demand. And I’m still skeptical about the idea that we can project incremental gains from shale oil production out into the future – I think we may find (and, indeed, are already finding) that the decline curves on those wells are steeper than expected.

    But…you’re going to have to explain to me how nuclear, renewables and natural gas are going to reduce demand for oil in the near and medium terms. Scaling up natural gas as a fuel source is still years (and likely many years) away, while renewables are a non-starter until we figure out how to store it. The falling demand for oil in North America is mostly a function of more stringent fuel emission standards. And you’re completely ignoring the skyrocketing demand for oil in Asia (which is, incidentally, where we want to get our oil to. The Chinese will be more than happy to build the refineries there for us).

    • The IEA forecasts a worldwide slowdown in the growth of demand for oil, but you’re right, Asian refineries could more than make up for dropping demand in North America and Europe. I think Leach’s point is more that there are winners and losers any time oil prices go up, and indeed any time a pipeline is built. Antweiler points out that markets move quickly. That being the case, I see proposals to ship to the West Coast getting rather long in the tooth — if proponents are antsy, that might explain some of the political rhetoric.

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