Front Burner - What a ban on Russian oil means for Canada

Episode Date: March 11, 2022

Oil prices in Canada skyrocketed this week as sanctions on Russian energy effectively shut the world’s third largest oil supplier out of the market following its invasion of Ukraine. The United States and the United Kingdom moved to ban Russian oil imports. Even the European Union, Russia’s biggest oil customer, announced its plan to slash Russian oil imports by two-thirds this year. Although Canada has never really relied on Russian oil, the impact of sky-high oil prices is already being felt in Canada, as prices at the pumps remain at record highs across the country. It’s forcing a moment of reckoning inside Canada’s oilpatch, an industry facing a choice — transition away from fossil fuels or ramp up production. Today on Front Burner, we speak with CBC’s Kyle Bakx about the fork in the road for Canada’s energy future.

In the Dragon's Den, a simple pitch can lead to a life-changing connection. Watch new episodes of Dragon's Den free on CBC Gem. Brought to you in part by National Angel Capital Organization, empowering Canada's entrepreneurs through angel investment and industry connections. This is a CBC Podcast. Hi, I'm Jamie Poisson. I think there is a degree of vindication. At least I feel like what we have been saying for years is now understood to be true, and that is the world needs more liberal democratic energy and less conflict energy.

Vindication is the word from Alberta Premier Jason Kenney this week. And for Canada's oil patch. During the pandemic, many people wondered if we'd ever see oil rise above 100 US bucks a barrel again. This week, it soared almost as high as $130. again. This week, it soared almost as high as $130. Gas prices in some places in the U.S. have now surpassed the apocalyptic prices predicted in the movie I Am Legend. You know, the one with Will Smith. And part of that is because the world's third largest supplier of oil is being shut out of so much of the market. The U.S. banned imports of Russian oil and gas and byproducts. Americans have rallied to support the Ukrainian people and made it clear we will

not be part of subsidizing Putin's war. The EU also says it plans to slash oil products from Russia by two-thirds this year. I truly believe that the current sanctions that were carefully designed and that are massive, that they will have a strong impact towards Russian economy. Canada banned it too, but here's the thing. We've never really relied on Russian oil. So why is the price at our pump so high? How long could that last? And really, is that a good thing or a bad thing? Because to some, it seems like we've forgotten our very important climate

goals here. To explain, I'm joined by my colleague, CBC's Kyle Bax. He's at this conference called SARA Week right now. It's this annual conference in Houston where oil and gas leaders are discussing how they see the future of the energy industry. Hey, Kyle, it's great to have you back. Thanks for being here. Glad to chat with you. So Canada never really actually imported much crude oil from Russia, and we haven't imported a drop of it actually since 2019. I guess our ban on Russian oil doesn't change a whole lot for us.

So why are the prices at Canadian gas pumps skyrocketing? Anyways, because I did fill up my car today, and it was a lot more expensive than it usually is. Yeah, I think the average price across the country this week is $1.87 and it's climbing. And that's all because of sky-high oil prices. They are through the roof right now at prices we haven't seen in almost 15 years. Way too high. In Canada, the east and west coasts are getting the worst of it. Newfoundland

and Labrador too is facing prices close to two dollars a litre. We used to burn 60 dollars a day, now we're doing 120. Russia has produced about 10 percent of the world's oil. When that large portion, much of it went offline and so these prices have started to soar. And it's a shock for just about everyone because of how quickly prices have started to soar. And it's a shock for just about everyone because of how quickly prices have shot up. Two years ago, after the pandemic hit, you could buy a barrel of Canadian crude for a couple toonies. Now the price is over $100 US. It even hit $130 this week. It's a dramatic escalation. And at the beginning of this year, prices, they were already rising quite a bit at around $80, but they just kept climbing to above $100 three or four weeks

ago. And then when the Russia-Ukraine conflict happened, that just sent the prices soaring. And yes, Canada hasn't imported any oil or petroleum products in a few years from Russia. But as prices soar across the continent and the world, prices at home do as well. And Jamie, that's why there's so much pain at the pumps right now. I'm wondering what kind of reaction you've been hearing to these prices from Alberta after years of slashing investments in new projects because the price of oil was too low, as you just mentioned, you know, I would expect a rise in gas prices to be a relief for Canada's oil patch. No? Absolutely. You know, during the pandemic, a lot of these companies were

racking up debt. And so, you know, it's been quite a turn of fortune for them because profits right now are extraordinary. At the beginning of the year, cash flow and revenues in the Canadian oil patch, they were already forecast to reach record levels this year. And that was well before this recent price spike. But you're right. Prices are too high, even for those in industry. They see it like all of us, how much pain there is at the pumps right now. Tristan Goodman was telling me how anything over $100 is too extreme. He's president of the Explorers and Producers Association of Canada, which represents a lot of small and medium-sized oil and natural gas producers. The high costs for fuel, of course, lead to price increases for food, for all sorts of products and services from coast to coast.

That's interesting to hear. Oil companies are also worried about high prices. I guess prices that are too extreme, just because there's just a huge ripple effect across the whole economy when prices are just so high. So like we've talked about, there's been a lot of Russian oil bans happening. Canada announced its ban on Russian crude imports Monday last week. And while Canada has imported very little amounts in recent years, this measure sends a powerful message. U.S. President Joe Biden followed with a ban on oil, gas and coal this Tuesday, the same day the U.K. said it'll phase out Russian oil imports this year. You know, we can't move overnight, but we can certainly do it. And we can do it in a way that doesn't disrupt supply, that ensures that we have substitute supplies on stream in an orderly way.

But the European Union is different. This week, they outlined a plan to reduce Russian oil and gas imports by two thirds this year and transition away by 2030. But why is it harder for the EU to move away from Russian oil and gas? It's simply because the EU is so reliant on Russian oil and gas. Europe is the biggest buyer of Russian oil and gas, especially natural gas. There's quite a bit of sticker shock in Canada in recent months when people open their utility bills and see how much they're paying to heat their homes. Well, the prices are substantially higher in Europe right now. And if Europe would suddenly stop importing gas from Russia, the problem would be substantially worse, likely sparking outages. You know, there is just too much dependence right now on Russian

energy by Europe. So as we talked about, you're at this energy conference in Texas this week, and I know you've been talking to reps from various energy companies about this, about this issue of energy security. And what are they saying about how this sudden striking of Russian oil from so much of the market should change the way that we maybe think about energy and our reliance on certain energy sources? Well, Jamie, this event, Sierra Week, it's been described as the Super Bowl of energy conferences. There are politicians from around the world here, investors, energy leaders, and so on. It sounds way more boring, no offense. It is. It's definitely not as exciting as the real Super Bowl. But leading up to this,

organizers, you know, they said the major theme was going to be the energy transition and there are a lot of events here that still are about the energy transition about cleaner fuels new technology talking about hydrogen talking about renewables talking about all sorts of new innovation but really you know a few weeks ago that changed pretty quickly after the invasion of Ukraine. Yes, energy security, it's topping the agenda without a doubt. And really, you know, when was the last time that was a big issue in the world? You know, experts here describe an amnesia about energy security dating back basically to the 70s. Some also describe how all the sanctions and bans against Russian energy has resulted in potentially the biggest disruption ever in the global oil market. Wow, this, Sora, I just want to be, I just want to pause on that

for a second. This could be the biggest disruption ever in the global oil market? That's right. You know, Russia produces 10% of the world's oil supply, and a large portion of that is gone. And it happens not overnight, but you know, really within a week or two. And just to be clear, we aren't yet seeing any evidence of any real shortages of oil. No, we haven't. There's no physical proof. Countries like Canada and the U.S, they can ban Russian imports and there aren't shortages. But around the world, prices are so high because supplies are so tight. And we saw some countries decide not to ban natural gas because if they would, then there likely would

be these shortages. And I think it's interesting, too, that it's not just oil and natural gas prices that are spiking, but other commodities like coal. Just a dramatic increase because there is so much uncertainty about energy right now. It's just across the board. In the Dragon's Den, a simple pitch can lead to a life-changing connection. Watch new episodes of Dragon's Den free on CBC Gem. Brought to you in part by National Angel Capital Organization. Empowering Canada's entrepreneurs through angel investment and industry connections. Hi, it's Ramit Sethi here.

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So I guess let's talk now about potential short-term solutions to these prices, but also these energy security issues. I imagine that Alberta was watching as this sort of Russia-shaped hole opened up in the U.S. oil and gas supply this week. How are the oil patch and Alberta saying that they can help supply parts of Europe maybe with oil? Is that even something they're talking about? It's a lot tougher right now to supply Europe just because of how the pipeline system is set up when it comes to exporting gas and oil. The majority of our exports go south.

The U.S. was importing 500,000 barrels from Russia. Oil patch leaders in western Canada say they can easily replace one-third to one-half of that amount and quickly. There's a bit of export pipeline space available right now. Enbridge's Line 3 was recently completed, and there have been some other small improvements and expansions to some other pipes. Also, Canada's not exporting very much oil by rail right now. So that's another option to ship more crude south of the border. I understand the Americans are looking at Venezuela right now for oil. And so can you just explain to me what's going on there and how Albertans are reacting to that?

what's going on there and how Albertans are reacting to that. You can just imagine the frustration. It's an issue that comes up in my interviews with industry or other people from Alberta. It comes up in interviews without me even asking or prompting. It's because the U.S. killed the Keystone XL pipeline, not once, but twice. They could come back to the table and help us build Keystone XL. You know, if President Biden had not vetoed that project, it would be done later this year. 840,000 barrels of Democratic energy that could have displaced the 600,000 plus barrels of Russian conflict oil that's filled with the blood of Ukrainians.

And now you have the Biden administration looking to Saudi Arabia, looking to OPEC countries and Venezuela for oil. And lots of people in Alberta are pretty livid about this. But at the same time, there's also this other feeling of gratification. The industry feels like it's been kicked around for a number of years, criticized for its environmental performance, emissions, not moving fast enough on climate change, among other issues. So now to have the U.S. government pleading with oil companies and countries around the world to pump out more oil as much as possible, as quickly as possible, there's a lot of gratification. And I asked Alberta Premier Jason Kenney about that here in Houston, and he agreed, describing this sense of vindication. It's ridiculous to see the Biden White House running around seeking increased production

and exports from places like Saudi Arabia, Venezuela, and Iran to replace Russian oil. Replacing dictator oil with dictator oil doesn't advance global peace and security. All right. Okay. So let's move now to the long term. I think there is some agreement, obviously, here that we need a more secure and stable energy supply. As the world talks about cutting fossil fuels, how are some in the industry arguing we actually need more oil and gas to protect our future? Talk to me about this. Well, I think there are two arguments here.

One is a stable supply, meaning that there aren't going to be these wild price spikes. And second, there doesn't have to be this reliance on buying oil, natural gas, and other commodities from places like Russia. So at a time right now when Russia is raging war on Ukraine, you have Europe, for instance, filling Russian coffers by buying natural gas every day. So those are the two main arguments. It's still weird to hear Biden administration officials bragging about how much they've increased oil production. You know, as you

mentioned, it's like not the conversation we've been having for the last couple of years. I'm going to do everything I can to minimize Putin's price hike here at home. In coordination with our partners, we've already announced that we're releasing 60 million barrels of oil from our joint oil reserves. Half of that 30 billion, excuse me, is coming from the United States. It's so true. And Jamie, I think back to November when the U.S. president, he was already concerned about fuel prices and he was wanting more oil production. At the time, I was in Glasgow, Scotland, covering the UN Climate Conference. And that's where Biden made this big push for taking action on climate change, making a lot of different pledges, and really urging the world to limit global warming. And yet the day before that conference began,

to limit global warming. And yet the day before that conference began, he was at the G20 meeting and he was lobbying OPEC members and other countries around the world to urgently turn on the taps and pump out much more crude. And so there definitely are these two priorities that they seem so counterintuitive, but he really wants more oil right now, but long term, obviously, to really cut down on the amount of fossil fuel use. Environmental advocates see, obviously, how serious the situation is in Europe right now. But they also do seem to see this as an opportunity for a greater push for an energy transition. Our producer Derek spoke with Arno Kopetsky about this. He's an environmental journalist and author based in British Columbia. Look, the IPCC, the International Panel on Climate Change,

just dropped its latest climate report four or five days into the invasion of Ukraine, highlighting yet again how serious the threat of climate change is. There's already three billion people who are today at risk of climate events. And on the trajectory we're on, about three quarters of humanity is going to be facing life-threatening climate events every year by the end of this century. So this is an existential threat of climate change that is every bit as serious for all of civilization as the threat Russia currently poses to Ukraine and that's why we need to be using this as an opportunity to accelerate Humanity's uh transition off of fossil fuel and onto renewable clean sources

of energy and there's a huge opportunity to do this. It's not even an opportunity. People are already doing it. Europe has already dramatically accelerated its reliance on Russian oil and gas, not only by getting more oil and gas from other sources, but by reducing the amount of energy they use in the first place and by dramatically accelerating the amount of renewable energy they get. And Canada can be a part of that process. Kyle, what have you heard about the feasibility of making this the moment for our energy transition to stop going down these two parallel tracks, but to pick a lane? Well, that's what some industry executives and global leaders are focusing on. Boost oil and natural gas production in the short term, but at the same time, on. Boost oil and natural gas production in the short term, but at the same time move much quicker on clean energy. This one analyst who studies the electricity market in Europe was pointing out at

this conference how countries there are leading the way on renewables and low emission sources of energy. And all this turbulence in the oil and gas market will only embolden those countries in Europe to move even quicker to get off fossil fuels. So Kyle, before you mentioned that Alberta wouldn't be able to send oil to Europe, but if it can't help where energy is needed most, how could it actually be helping global energy security right now? Well, some in the industry think more pipelines should be built to move natural gas to both coasts. That seems like a tall order considering just how expensive and time consuming it has become to build a major pipeline in Canada. There are a few natural gas export facilities, though, that are already in development and under

construction on the BC West Coast. So more of Canada's natural gas should be exported in the coming years. Kyle, what has this conflict said to you about how difficult it is to shift off fossil fuels? How tough it's going to be, how there's not going to just be this nice, smooth, orderly transition or a really quick transition. It's going to be tough to shift off of fossil fuels. Not everyone is going to go out and buy an electric car this year or replace their furnace. So there's a lot of financial pain right now for a lot of people. And this price spike is going to mean more investments in oil and natural gas production around the world. It's also going to potentially prolong the use of a lot of coal power plants as well. Some analysts here are pointing out that in Europe, there are quite a

few coal power plants that are scheduled to be shut off in a few years. But they could now delay those closures. Analysts say that's one of the big questions for Europe right now. Is it climate or is it security of supply? Because one of the big levers here is coal. I almost hesitate to ask this, but like, is there a sense, you mentioned financial pain, of how long we can expect these sort of explosive gas prices to last here? You know, just looking back in recent days, how this week has played out, we've had days where oil jumped more than 10% and the day where oil

crashed by more than 10%. Not only is supply tight right now, which is driving up prices, but there's so much uncertainty. And that's another element that is increasing prices as well. More and more, it's clear the conflict in Ukraine won't end quickly. So it sure feels like the high prices will stick around, although hopefully not so severe. That was part of what Carlos Pascual said here while on stage this week. He's the former U.S. ambassador to Ukraine. He doesn't think the conflict will be over in weeks or months. We're going to see a very tragic, very difficult humanitarian situation. I find it difficult to find words to express it that will continue within Ukraine without

a simple and easy solution that is going to play itself out over time. But the kinds of things that we've been talking about here on the global impacts, the impacts on markets, they will continue. If you're wondering whether this is going to be over in a few months, I don't think it's going to be over in a few months. I think we're facing something that could play itself out over potentially even years. So, Jamie, likely much more turmoil ahead. Kyle, thanks. Thanks so much for this. My pleasure. All right, that is all for this week.

Front Burner is brought to you by CBC News and CBC Podcasts. The show was produced this week by Imogen Burchard, Aliie Janes, Katie Toff, Simi Bassi, Derek Vanderwyk, and Samantha McNulty. Our sound design was by Mackenzie Cameron and Nooruddin Karane. Our music is by Joseph Chabison. The executive producer of Frontburner is Nick McCabe-Locos.

And I'm Jamie Poisson. Thanks so much for listening. We'll talk to you on Monday.