While all the other Western industrial nations anxiously search for means to deal with an imminent energy shortage, Canada stands alone among them with productive capacity apparently in excess of her needs. Thus it seemed natural for the 1970 report of the Cabinet Task Force on Oil Import Control to recommend that the United States and Canada harmonize their energy policies. Even the Secretaries of the Interior and Commerce, who joined the Chairman of the Federal Power Commission in criticizing other aspects of the majority proposals for import control liberalization, agreed that the United States should "negotiate with Canada toward a common energy policy which would provide secure supplies of oil and gas to the United States and which would cover all energy sources."
The logic was clear enough: U.S. self-sufficiency in energy was declining and dependence on imports had to be reconciled with national security; Canada was a source of supply "nearly as secure politically and militarily as our own"; and so one means of assuring reliable supplies was to make long-term arrangements with Canada. Moreover, it was reasonable to assume that Canada would be receptive. Her oil and gas industry was already closely integrated with that of the United States, and Canadian economic policy had for decades promoted development of the extractive industries and export expansion.
But it should be recalled that, in May 1970, Joe Green, Canada's energy minister, addressing the Independent Petroleum Association in Denver, declared: "The Canadian people will not tolerate decisions affecting Canadian security being made at the insistence of non-Canadians, even to win the prize of larger markets." And the Canadian press enthusiastically responded to their new spokesman for national independence.
This reaction took many Americans by surprise, and, indeed, it surprised many Canadians. Canadians have never been nationalistic by the usual standards. The Liberal government had hitherto responded favorably to new economic opportunities in the United States, and even Green had earlier referred to greater integration with U.S. energy markets as a "great opportunity for Canada." Clearly, Canadian atti-udes were changing, and to understand this requires some appreciation of the extent to which Canada has allowed its relatively small economy to slip under U.S. influence.
In contrast to the American, the Canadian economy is heavily dependent on foreign trade. Canada is among the world's largest trading nations, and is the largest trading partner of the United States. Since World War II, Canadian trade has both grown rapidly and become increasingly oriented toward the United States. But the trends in trade do not concern Canadians nearly as much as the rapid expansion of U.S. ownership and control of Canadian industry, land, and natural resources. Successive Liberal governments in Ottawa, traditionally disposed to free trade and capital movement, have begun to respond to this growing anxiety, and three government investigations of the issue in the last five years have underlined the problem and called for corrective measures.
One irritant is that much of the heavy U.S. investment is directed toward the more capital-intensive, less competitive, and tax-privileged industries, as most of the resource industries are, and integration with the United States tends to aggravate the consequences of these characteristics. Moreover, a "branch plant" economy leads to truncated enterprises which inhibit the full development of Canadian entrepreneurial capacity and skills, relegating Canadians to "hewers of wood and drawers of water." In addition, while Canadians have been anxious to promote secondary industry, heavy capital inflows put upward pressure on the exchange value of the floating Canadian dollar to the prejudice of secondary exporting and import-competing firms.
The pervasive importance of U.S. markets and capital means that Canadian economic policy must to a large degree be responsive to economic conditions in the United States. Still more worrisome to Canadians is the extreme vulnerability of their economy to changes in U.S. policy made in response to more general U.S. problems. Thus the interest equalization tax, introduced by the U.S. government in 1968 to mitigate its balance of payments difficulties, threatened severe economic dislocation in Canada, as did the import surcharge and investment tax credit of 1971, and the DISC provisions designed to stimulate production at home rather than in foreign subsidiaries. On each event, Canadian authorities were obliged to plead with Washington for special exemption, with mixed success. Canadians also see a threat in the extraterritorial application of U.S. export-control and antitrust laws.
For many Canadians, the problem is more political than economic, extending beyond foreign control of business, land, and natural resources to U.S. domination of "international" trade unions, the disproportionate numbers of American professors in some Canadian universities, and U.S. cultural influence through television, radio, publications, and advertising. Canadians are becoming apprehensive about their ability to control their own future, their lifestyle, and something that Prime Minister Trudeau calls "national integrity."
It would be an exaggeration to suggest that this concern is universal or even dominant in Canada. There is still a plentiful desire for more foreign capital (especially areas like oil-rich Alberta and the frontier regions) and plenty of contempt for nationalism. But the apprehension has been strong enough to induce some government action. Several provinces are now studying means to control the growth of nonresident ownership of land. British Columbia, the third western province to elect a socialist government has recently announced a Crown energy corporation, to cut into the natural gas industry, which is controlled by U.S. interests from the resource base through the delivery system to U.S. markets. The Canadian federal government has taken steps to protect Canadian control of banking, some media, the uranium, and some other industries. A controlling interest in Panarctic Oils has been acquired by the federal government to establish a Canadian interest in exploration of Arctic islands. The federally sponsored Canadian Development Corporation, established to promote Canadian enterprises, recently purchased a controlling interest in Texasgulf, Inc., which earns 86 percent of its income from large mining and petroleum interests in Canada. (The company also has holdings in the United States, and Canadians watched with bemused interest when Texas Senator Bentsen objected that the takeover was a matter for U.S. national concern lest the new owners respond to their own priorities.)
The whole issue of national integrity is coming to a head in the energy arena. In past seasons, Canadians have watched the icebreaker Manhattan, on its experimental voyage to the Alaskan oil fields, refuse to acknowledge Canadian sovereignty in Arctic waters; President Nixon, in an apparent attempt to prod Ottawa into making energy agreements, cut oil imports from Alberta; and preparations made for tanker movements off the British Columbia coast with apparent disregard for Canada's environmental concerns.
Now the issue is becoming focused, in particular, on a proposal to build a large natural gas pipeline from the fields on the Arctic coast, up the Mackenzie River Valley in the Northwest Territories, and across Alberta to southern markets, mainly in the United States. On the face of it, U.S. and Canadian interests appear to coincide on this project, which at $5 billion for the pipeline alone would be the biggest undertaking Canada has ever attempted. It now seems certain that oil from the Alaskan North Slope will be delivered by a trans-Alaska Pipeline and tankers to the U.S. West Coast (see below). But there is gas associated with the oil at Prudhoe Bay and, except for the expensive alternative of liquefaction for tanker shipment, it must be delivered by pipeline across Canada. For a 3,000-mile pipeline to be economic, it must be large, but the 4-billion cubic-feet-per-day capacity of the proposed 48-inch diameter pipe is more gas than is available from the oil fields. And so the consortium of twenty-five companies developing the plan proposes that a branch line to Canada's newly discovered gas fields in the Mackenzie Delta provide half the throughput.
As might be expected, there are overlapping interests in Prudhoe Bay, the Mackenzie Delta, and the gas-line consortium, but Canadian ownership predominates in none of these ventures. Canada is not in urgent need of Arctic gas for domestic purposes; much less expensive supplies in the western provinces will meet her needs for some years. Indeed, Imperial Oil, the largest interest in the Mackenzie Delta, has already signed long-term contracts with U.S. purchasers for 10 trillion cubic feet of Canadian gas.
Initial concern about this project centered on its environmental effect on Canada's vast and fragile Arctic, and on the welfare of Indians and other native peoples. More recently, attention has turned to its impact on the Canadian economy and the benefits that Canadians can expect. In view of the limited capacity of Canada's financial markets, most of the capital would have to be raised. in the United States, and the in-flow (to the extent that it was not offset by imports of materials or extraordinary monetary adjustments) would put heavy upward pressure on the Canadian dollar to the detriment of exporting and import-competing industries. And the dislocations to the Canadian economy during the construction period would be substantial.
Moreover, Canadians are beginning to realize the implications of the anxious efforts of the federal government of the 1950s to lure economic activity into the far north. Since oil was discovered across the border in Alaska, nearly all the sedimentary areas of the western Arctic have been taken up in exploration permits, which, as a result of generous incentives to explore, carry recovery rights with lower royalties and longer terms than can be found almost anywhere else in the world. Thus, while there are enormous values at stake, they will not accrue to the public landlord, but rather to producers and consumers, who, for the most part, will not be Canadians.
In these circumstances, and as the full blast of U.S. energy demand is felt in Canada, Canadians have growing doubts about the gains that might flow from a "continental energy policy." The meaning of the phrase is not clear, but if it means that Canada should share U.S. energy shortages, the idea is obviously unattractive. Whatever it means, Canadians find it hard to believe that they would have as much influence on U.S. policy as the United States would have on Canada's. The Canadian government appears to have enough difficulty controlling the great multinational oil companies, which have incomes many times its own. And now that Canada faces a seller's market for oil and gas and is virtually free of the strategic self-sufficiency anxiety besetting the United States, it is not obvious to Canadians that U.S. participation in Canada's policy decisions would yield any benefits that could not be obtained through normal trade arrangements. On the contrary, Canada has tried to shield itself from the strains of the U.S. energy market, through such measures as its new export tax on oil. It has its own interest in low energy prices, and its own problems in reconciling the demands of eastern consumers with western producers.
Moreover, while the development of energy resources is of major economic importance to Canada, her immediate capacity to meet the projected import requirements of the United States is limited. Although Canada has been one of the biggest sources of U.S. oil imports, trends in the growth of proved reserves do not point to much expansion of exports. The scope for natural gas, and possibly oil, from the frontier regions is probably much greater, but reserves are not yet well established and transportation problems remain to be solved. Development of the enormous reserves of the Athabaska tar sands—something like 300 million barrels of recoverable oil—would drastically change the whole continental energy picture, but the viability of the infant industry has yet to be fully demonstrated.
A version of this article appeared in print in the January 1974 issue of Resources magazine.
