Canada’s Energy Ambition: From Market Hostage to Global Player

This week, Jackie and Peter discuss Peter’s recent writing, including his article in The Hub titled “Increasing Canada’s Energy Ambition is an Economic and Geopolitical Imperative” as well as two other pieces, “Geoeconomics and State Capitalism” and “The Cost of Being a Market Hostage.”

Peter argues that Canada must raise its level of ambition to compete in today’s geoeconomic and geopolitical environment—one where markets are shaped less by free trade and more by state power, economic coercion, and the strategic use of industries to advance geopolitical objectives. In this new order, the effects of tariffs, sanctions, control of trade routes, and dominance over critical resources are felt daily on the global stage.

Yet Canada is not showing up as a true contender. The country remains passive, heavily dependent on the United States for oil and gas exports, at significant cost to the economy. Peter outlines four levels of ambition that Canada could pursue. At the lowest level, the nation remains a “market hostage,” reflecting its current state in oil and gas. A modest step up would be the role of “competitor,” in which new tidewater export capacity expands Canada’s reach. Moving further, Canada could become a “negotiator,” able to leverage energy exports as a bargaining chip in international relations. At the highest level, Canada could aspire to be an “aggressor,” a country that wields genuine market power in vital resources—similar to the way China has achieved influence through state control of strategic industries.

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Episode 297 transcript

Disclosure:

The information and opinions presented in this ARC Energy Ideas podcast are provided for informational purposes only and are subject to the disclaimer link in the show notes.

Announcer:

This is the ARC Energy Ideas podcast, with Peter Tertzakian and Jackie Forrest, exploring trends that influence the energy business.

Jackie Forrest:

Welcome to the ARC Energy Ideas Podcast. I’m Jackie Forrest.

Peter Tertzakian:

And I’m Peter Tertzakian. Welcome back and welcome back to you, Jackie. How was your big, mega camping trip?

Jackie Forrest:

I went to Assiniboine, which I’ve really wanted to do for a long time, and it was definitely, I think last year we did a four kilometer back country trip. That was my first one, so this was quite a bit harder than that.

Peter Tertzakian:

Did you go via Sunshine Meadows? I know having gone there many times, there’s a sign that says 27 kilometers to Assiniboine, and you can see Assiniboine in the distance, and I’ve always been tempted to do that. But you didn’t take that route?

Jackie Forrest:

I didn’t take that route, but I think that would be a really beautiful route too. We went from Mount Shark, which is in Kananaskis, kind of on the Spray Lakes Road. We actually took a helicopter in and then we-

Peter Tertzakian:

Wow, first class.

Jackie Forrest:

Yeah. Well, it still was a lot of work though, because then we walked five kilometers in the wrong distance towards actually Sunshine to a place called Og Lake. Then we walked back the 5K and that was still 30 more K all the way out. So we did that over two days. But it was great. We were very, very lucky. For that time of year, you could have had snow, but it was beautifully warm. Larch trees were all yellow. Assiniboine was beautiful and clear. So I know this summer a lot of people might’ve went in there and just saw rain and clouds, so we got really lucky.

Peter Tertzakian:

Fall is a great time. And then when you wake up in the morning, it’s just above zero typically, and it’s just really sometimes below zero, but it’s just so fresh and crisp.

Jackie Forrest:

Yeah. Well, and this year, as you know Peter, I’ve done a number of trips because there’s just so much in our Rocky Mountains, in our backyard, and I just hadn’t seen it all. So it was a great trip. It’s a big trip, really glad I got to see it.

Peter Tertzakian:

Great. Well, now onto more mundane things or more serious things, I guess let’s talk about what’s going on economically and then we’re going to, what’s the agenda for today anyway? What are we talking about?

Jackie Forrest:

We’re going to talk about some of your recent writings around geopolitics and geoeconomics, and this is increasingly impacting investors, so we want to talk a little bit about how to navigate this kind of more uncertain world that we live in.

Peter Tertzakian:

Okay, well, before we get there, let’s just talk about the Canadian economy because there’s a number of outlooks out there, not particularly healthy, some debate about whether we’re going to dip into recession or not. The GDP numbers came out in July, just barely growing.

Jackie Forrest:

Yeah. So today is September 29th, but last Friday the numbers for July came out, 0.2% growth. Now, people were looking very carefully at this data point because if you remember, the Canadian economy shrank 1.6% in the second quarter, so that’s for April, May, and June. There’s also an estimate, and it can change for August, that shows flat. So a recession is two back to back quarters of negative growth. So it looks like we’re going to escape maybe an official recession because maybe we’re going to be more flat in the next quarter. However, we’re not doing great, especially when you consider the Americans that saw second quarter growth well over 3%, I think there was something like 3.8%. So our economy is really sputtering along here.

Peter Tertzakian:

And the tariffs do not help on some of our vital industries like aluminum, steel, and so on. So that all together, these weak numbers combined with still the hangover of the tariffs and the lack of a deal has led to, in part, has led to the delay of the federal budget.

Jackie Forrest:

Well, and so I think people are pretty nervous about the budget, and I think there was some disappointment to not get a better sense of where we’re going because there’s some views that the deficit’s going to be quite large this time.

Peter Tertzakian:

65 billion I think.

Jackie Forrest:

Yeah, that’s one estimate that came out this week, we’ll see. But you got a couple of issues. You got revenues are going to be down because our economy is growing slower. Plus we’ve been putting out all this money to support those sectors that are being hit by the tariffs. I’m sure we’re going to have in the budget some money to support these nation-building projects. So the costs are going up, the revenue is going down, and there was an article this week or a report that came out talking about significant concerns about our fiscal situation.

Peter Tertzakian:

The Parliamentary Budget Officer or the Interim Parliamentary Budget Officer Jason Jacques, raised some significant concerns about the sustainability of the federal finances, talking about how close we are to going over the precipice as a metaphor of where the Canadian economy may be at and the $65 billion deficit or whatever it may be. I think it’ll be into the 60s, once or twice is okay much as it was in the pandemic. But if it’s expected to be sustained over the course of the next decade as a consequence of the things that are going on, then it’s definitely a precipice. But there is the possibility that we expand our trade. The major project office works to build our infrastructure and kickstart the economy. I mean, building infrastructure will definitely kickstart the economy. The question is, at what cost and will those investments into the economy then pay off and then bring down our debt to GDP type ratio or GDP to debt, whichever way you want to look at it.

Jackie Forrest:

Which is getting a bit unsustainable because we’ve been acquiring more and more debt really since the pandemic and the economy hasn’t been growing. So I think it’s urgent that Canada grow its economy now that Mark Carney, that’s one of his goals, but let’s talk about the geopolitics and geoeconomics because they are also, I think creating more motivation or should be creating more motivation for us to change our goals. So you’ve written a number of articles on these issues. We will put links to them in the show notes. One was in the hub, which was on September 9th, Increasing Canada’s Energy Ambition is an Economic and Geopolitical Imperative, and there’s a couple of other articles that we’ll put links to on the websites, geoeconomics and state capitalism and the cost of being a market hostage. So we’ve talked about geoeconomics a little bit before, but just once briefly, what is the definition of geoeconomics?

Peter Tertzakian:

Well, it’s a new term, but it’s nothing new in terms of economic history. The geoeconomics is the use of economic power to achieve geopolitical or other aims. So listen to the news, read the headlines, however you consume your news, and you will see that almost every day you will find some type of economic instrument, or if you want to take it further, an economic weapon that is being announced somewhere, whether it’s by the United States, by China or other groups. Tariffs fall under that category. Sanctions, a sanction is effectively an infinite tariff because there is no price at which I will trade with you. Control of transportation routes such as the Panama Canal or other choke points in the world, control of supply. So a great example of that is the restriction of semiconductors, or in the case of China, restriction of critical minerals. These are all examples of exertion of economic power to achieve broader geopolitical or other aims.

And we have entered into this era where effectively it’s a global economic cage match where countries are fighting it out, notably the United States and China, we hear mostly about the United States, but on the other side of the world, the Chinese with their Belt and Road Initiative, which started about 10 years ago and is now entrenched in over 100 countries where the Chinese are using also other instruments of geoeconomics, which is lending countries money, providing subsidies or outright grants to build infrastructure in places like South America to be able to get market access and achieve geopolitical aims. And so it’s the use of economic muscle to basically throw your weight around globally. And so we have not in Canada been overly concerned about this until the second Trump administration with tariffs, et cetera, et cetera, because we’ve sort of been complacent about the whole thing. Now we have to be aware, now we have to define what is our ambition.

Jackie Forrest:

Yeah. And we’ll get into some specific headlines. Things like China cutting back or making it harder to get critical minerals as a way to get leverage over countries or the Americans as part of the European trade deal. “Yeah, we’ll make a trade deal with you, but you have to buy hundreds of billions of dollars of energy from us as part of that.” So we’ll get into the specifics. But you’re arguing that Canada is not showing up as a real contender in this new world. We’re dependent on the US with a significant cost to our economy, and we have no leverage. You can see it, for example, when we get tariffs on steel, copper, aluminum, or these canola tariffs now, we just can’t punch back. We don’t have any tools in the toolbox.

Peter Tertzakian:

We don’t really have a lot of tools in the toolbox, as I said, because we’ve never really been expecting this kind of shift in the world order where the use of things like tariff sanctions, control of trade routes, and so on to achieve different aims is become prevalent. So if you think about, for example, “If you don’t control your fentanyl issue, we are going to slap tariffs.” Again, it’s this idea that I’m going to throw my economic weight at you to get some sort of outcome. It doesn’t necessarily actually have to be geopolitical. If you look at the Brazilian situation where they don’t like the trial of the former president of Brazil, therefore, “I’m going to put sanctions on you.” So it is just this sort of thing. “Don’t buy to India. I’m going to put sanctions on you if you continue to buy Russian oil.”

So the use of economic weaponry is a hallmark of this, and we have not been really accustomed to this kind of thinking because we’ve just had free trade agreements with the United States and they’re our biggest customer and considered to be our friends, and now all of a sudden it’s a free for all, not only with the United States, but all around the world. And by the way, I mean, this is not anything new in the oil world. I mean, OPEC is basically a cartel that has historically been grounded in throwing their weight around in the control of oil supply to achieve greater aims.

In the 1970s and ’80s, it was as a consequence of the politics of the Middle East. So guess what? It’s really back in a big way. We have to think differently than we did over the course of the last couple decades. And part of the whole geoeconomic playbook also depends heavily upon another emerging theme which you’re starting to see play out particularly in the United States, and that is the term state capitalism. In other words, the closer and closer alignment of strategic industries with the state’s aims.

Jackie Forrest:

And China’s the biggest example of that would being that the Chinese government owns and controls most of the major industries, so they’re able to get their companies to do things that maybe aren’t the most profitable or maybe aren’t the best things in terms of creating profit for the owners of the company. But they have other strategic goals, and Saudi Aramco in Saudi Arabia, most of the Middle East countries actually have national oil companies. So they’re okay with, “Yeah, we’ll cut our production because it’s creating some other outcome that we want and profitability isn’t the only thing that we’re working, having these companies do.”

Peter Tertzakian:

No, exactly. Now I want to point out that you don’t have to have nationalized state owned companies to have alignment to what seeing in the United States is very much the various large industries, whether it’s from semiconductors to energy being aligned with the state policies or have acquiesced to the federal government to be part of this whole geoeconomic playbook. But even so, I mean, you look at the United States wanting to take ownership of Intel shares, getting involved in the deals that NVIDIA has cut with China and so forth, speaks very much to the state capitalistic model. Doesn’t again necessarily mean nationalization, but it does mean that if you’re going to throw your weight around globally, then the state has to have alignment with its industries such that it can do so.

Jackie Forrest:

And just recent news last week where this is kind of rumored, it was in the Wall Street Journal that the Trump administration is talking about saying to chip manufacturers that you have to produce a certain amount of the chips here in the United States. Now, I would argue that the Americans, maybe they can put a bit more control on their companies because they are the largest consumer market in the world, and not having access to that market is a big problem for companies. I would argue Canada maybe has less levers when it comes to state capitalism over our privately held companies, but let’s come to that.

First of all though, I want to talk about the solutions. So you argue one of the obvious solutions is creating more exports of our products to overseas, not just to the Americans, to create some leverage in terms of the negotiations, not only with the Americans, but even with Asians for instance. China’s put tariffs on us around our canola and some of our other metals, and the idea is that if we could have more products going their way, there would be more leverage to say, “Hey, we’re going to cut you off from our oil if you put tariffs on our other products.”

Peter Tertzakian:

Yeah. So I mean, let’s look at step one, which is getting away from, I think from a business perspective, we would call it concentration risk. So MBA 101, try and diversify your customer base so you are not so dependent upon one customer, in our case, the United States. Okay, that’s nothing new. We came to that realization back in January when the then newly elected Donald Trump started to put the tariffs and threats of tariffs on Canada. We realized, “Uh-oh, we better start diversifying our markets.” And we are continuing to try and do that, but there’s more than that if you want to up the level of ambition, which we’ll talk about here in a few minutes, but if you want to have the ambition to then get into different markets and not just be, for example, a simple price taker and be hostage to other markets, then you have to go in earnest with the intent to try and get some significant kind of market share to be able to have some leverage.

For example, the Chinese put a 75% tariff on our canola, and if we have substantial market share in various commodities going into the Chinese market or other Asian markets, then we can say, “Well, that’s fine, but just remember that you buy X percent of our commodities that are vital to your economy.” So at least there’s some negotiating leverage. We do not have that kind of market share globally in really any commodity to be able to have that. Possibly, and I’m not an expert in agriculture, but potentially some of the major agricultural projects like wheat, things like very niche like potash fertilizers and things like that. But honestly, you can clearly see the canola situation where we basically have little to no leverage in responding to these geoeconomic instruments that China has placed on us.

Jackie Forrest:

And that the Americans are placing on us for the opposite reason because they know we’re completely reliant on them, and because we don’t have enough infrastructure to really move our product in a big way to overseas markets, we have less options. Now, one of the questions that often comes up when we talk about, we’ll specifically talk about oil and gas, but I think there’s opportunities to expand our exports of uranium and potash and all sorts of other goods, but let’s talk about oil and gas. There’s a question, well, is there an appetite for Canadian oil and gas in Asia? Let’s start with oil, which is kind of quite interesting because the Trans Mountain has been shipping for over a year now, and initially people thought that all of the crude oil that would come out and get onto the water would mostly go down to California, because generally products flow to the closest market because that’s kind of the best economics versus the more distant market, which has higher transportation costs.

But what we’re finding is that about half of the flow out of the Trans Mountain, and it is a fairly small amount today, but about half of it over 220,000 barrels a day so far is going to Asia and China’s taking like 35% of the total exports that are going onto the tide water. So there was a debate, could they process Canadian crude? Would it be too acidic? But it looks like there’s an appetite and there’s refineries in Asia that are demanding these products.

Peter Tertzakian:

Well, there’s a big appetite and there’s a particularly big appetite for the heavier oils such as the oils from the oil sands because those are used also very much in petrochemicals. So it’s not just oils to make fuels like gasoline and jet fuel and diesel. There’s a lot of appetite as their economy grows for the petrochemicals and all the other things that are built off of petrochemicals, plastics and what have you.

Jackie Forrest:

And the heavy oil capacity, if you look at Asia in totality, it doesn’t have a lot of these units that can process the heavy crude, but there are still some units there and some demand for it. So I believe that there is appetite. It’s early days, but we could send more, I think to the Asian market. Now, natural gas is another question. Of course, we’re just in early days of that as well with LNG Canada ramping up quite slowly, which is typical by the way. But based on looking at pipeline data, we estimate that LNG Canada is probably only running at about 10% of its nameplate capacity right now. Now National Bank did some research to look at ramp up for some of the US facilities, and the average ramp up to nameplate was nine to 11 months. So I don’t think LNG Canada is unusual, but we just have very little in terms of the number of cargos that have gone so far.

But the question is, is there demand for Canadian gas? And I think that there is. I think if we had LNG Canada phase two, in addition to phase one, plus Ksi Lisims, which we talked about last week, getting its environmental review, plus some of those smaller projects that are under construction like Cedar and Woodfibre , there’s the potential for 50 million tons per annum by the early 2030s going to the Pacific Basin. By our math, there’s about a 200 million per ton per year market in the Pacific Basin. So we could be like, 20% or so of that market if we can get all these projects done, and if we can find buyers for our gas, which I think we will be able to do. I mean, there is a bit of a concern about a lot of supply coming on around that period, but I think Canada has some advantages over some of those other suppliers.

Peter Tertzakian:

Well, yeah, I think that this brings about an important point because people, whether it’s oil or for gas, they say, “Oh, well, is the demand going to be there?” And to me, that’s the wrong way of approaching this. I think we have to be more strategic in our thinking, a little bit bolder because the question is, are we competitive? Can we even, and this is not the case for natural gas, that demand is flat, well, can we take market share away from others because our gas is cheaper? And for example, the transit times to tanker from West Coast of BC to Asia is shorter than anywhere else, and the answer is very much a yes. So I think it’s a mindset shift that yeah, we can compete, we can get into this global cage match for market of any of our commodities and compete quite handsomely whether or not the market is even growing.

And so that’s where it’s at is I think we have to have a mindset shift, one that’s more, I’ll say the word aggressive in terms of how we think about it because we have to be in this world where all these countries are throwing their weight around economically, and in some cases almost like economic warfare. To be meek and stand back and just question whether or not the market’s growing and can we go in and take a slice of the margin that’s growing I think is completely the wrong way to look at it is can we get into the market? Can we compete? Can we push out other suppliers? And then can we get sufficient market share to actually have some negotiating leverage to be relevant on a global stage?

Jackie Forrest:

Well, and I think that this world we’re in actually speaks to diversity. So I think a lot of these buyers in Asia, they don’t want to be wholly dependent on the Middle East or Russia. So I think that there’s an opportunity for us to create diversity of supply. We’ve got the advantage, like you say, of the shorter shipping distance. But we also have an advantage that we don’t go through a major choke point. The Americans, they need to go through the Panama Canal, the Qatari gas needs to go through the Strait of Hormuz, and our oil and gas can flow freely into Asia. So I’m optimistic that even though in the case of gas, there may be a lot of supply coming on in the 2030s, that people are going to want to, like you say, if our gas is competitive and we offer diversity of supply, I think there’ll be a market. You talk about four levels of ambition and you’re up in the hub that Canada could take. Maybe just go through those.

Peter Tertzakian:

Yeah, sure. So there’s four levels of ambition. I mean, this came about actually with the whole idea of being a superpower. And I thought, “Well, what does that actually mean?” And I know several people including yourself, have spoken about being a superpower, but I always like to also say, take the converse. Well, what is not a superpower? And let’s just start from there. And what is not a superpower at the bottom rung of ambition is what I would call a market hostage, and that’s where we have been with both oil and natural gas. Arguably, we still are there with natural gas. A market hostage is when the industry basically is a price taker. It has no control. And indeed, we’ve seen these massive differentials on oil over the course of the last 15 years. Natural gas is no different.

In that article, we quantify that as a consequence of being a market hostage on the oil side, we’ve left about 49 billion American dollars on the table over the course of the last 15 years, which is almost like $3 billion US year. It’s just a staggering amount of money because we have not bothered to be more strategic about diversification of our markets and getting top dollar for the resources that we have consciously said we are going to extract and sell. So market hostage is rung one. The next level up is, okay, let’s diversify our markets to the point of being a competitor. That means that we avoid these sorts of discounts that we have experienced. We can compete for market share, but although a more assertive stance than a market hostage, it’s not quite being able to leverage in a negotiation. In other words, that if someone is applying economic coercion or geoeconomic force on Canada, that we don’t as a competitor, still have much leverage and that the buyer can go somewhere else to get their oil gas or whatever commodity.

The third level up though is sufficient market share to be what I would call a negotiator. Okay, you can’t push us around because we have significant market share of something that you want. And to me, we should aspire to be certainly at least a two, if not get to a three. The fourth rung is the highest rung, and I call that the aggressor. That means that you can actually use your vital commodities to be able to push your weight around, and not only in a defensive mode, but more in an aggressive mode. And we’re seeing plenty of that in the world, whether it’s with critical minerals or whether it’s with semiconductors or whether it’s sanctions on this or sanctions on that. But I don’t feel as a Canadian that that’s our space. And the negative, or I would call the aggressive side of superpower falls into that category is where you are actually using your vital commodities in a very aggressive manner.

Jackie Forrest:

Yeah, I mean, I would argue for a couple of reasons that it’s tough for us to become the aggressor. First of all, even if we could increase our exports when it comes to oil and gas, we are still relatively small, over 5 million barrels a day of oil production. But compare that to the Americans like Saudi Arabia, Russia, or the United States, which are over 10. So that’s one issue.

Peter Tertzakian:

Yeah, but that’s on the supply side. To be like a negotiator, all you have to do is take a certain amount of the market that you are operating in. So for example, it’s not the world market that we, 103 million barrels a day of which the US and Saudi Arabia are say, 12-is and we’re five. It’s actually the Asia Pacific market. It’s particularly important when we talk about LNG because we’re not talking about the global market. It’s the market that you play in that you have sufficient market share to be able to be significant enough to have some kind of market power.

Jackie Forrest:

Well, okay, then here’s another argument is that government doesn’t control the commodities, private companies do. So even if we wanted to grow to become more significant or even build these pipelines, you do need private companies to back them. And I think the Americans, because their economy is so big, they I think have more ability to force companies to do things or just pay for them themselves than our economy. So I think that’s another weakness. Another weakness is some of our big companies aren’t even owned by Canadian entities. They’ve been taken over by foreign entities, and so it’s even more distant. I did want to flag, by the way, what you think about this tech resources being taken over by a UK firm, Anglo American. Should we be having more foreign companies have ownership over these kind of critical companies?

Peter Tertzakian:

Well, in a world where state capitalism, in other words, where industries aligned with the state to become like a negotiator, up to a negotiator on a ladder of ambition, it does matter. It does matter who owns our strategic industries. So I think that there is a conversation that needs to be had about that. Now, the UK, certainly a friend of Canada, so you may say it doesn’t matter, but historically, the US was a friend of Canada. So I think we need to be more assertive in the way we think about our strategic and vital commodities, who owns them.

I don’t have the answers, but I think that all of this stuff needs to be thought about, and that’s one of the reasons why I published these papers that says, “Okay, look, I don’t have the answers, but we need to be thinking more strategically.” And certainly if you want my opinion, I think we need to be more assertive, get away from being market hostage, which by the way, we still are on natural gas, still losing money and become at minimum, competitor and negotiator in that realm. So it is important who controls the resource.

Jackie Forrest:

Now, another issue unique to Canada is the way our constitution is that our provinces have a lot of power too. The federal entity doesn’t have all the power that maybe it needs to be an aggressor or a negotiator. So what do we do about things like provinces, First Nations? We need everyone on board. It’s harder, I think for us to get to that aggressor level because of the way we’re constructed.

Peter Tertzakian:

Well, it’s harder, but I never think anything is impossible. But you bring about a good point because in this new era of emerging state capitalism where industries are aligned with the state or outright owned by the state, so let’s take one bookend, which would be like Saudi Aramco, which is state owned or many of the other, as you point out, state owned oil and gas companies, but it doesn’t have to be oil and gas. I mean, you look at China with their heavy either fully state owned or heavily state influenced companies that are subsidized by the state on one end. And here we have Canada on the other end where we have federal government, provincial government, and industry seemingly completely misaligned in terms of strategic intent, still very much in a free market mindset where the market will take care of everything.

And by the way, that is one of the things I’m also arguing is that the whole notion of free market is now an artifact of the last era in history, which probably ended about 2022-ish. You cannot ignore the state capitalism influence and that the profit motive has to be accompanied by some sort of national interest motive. And certainly I would say that the Trump administration, and not only Donald Trump, but the people around him have figured this out, which is why you’re seeing more and more alignment of their strategic industries.

Jackie Forrest:

Okay. So we got to get everyone on board, no easy feat. Now, I actually think that urgency of this is growing because let’s go back to that LNG example. We talked about the fact, well, if we’re the lowest cost and the closest proximity and we offer diversity of supply, then everyone’s going to want to buy our gas in Asia, of course. But there’s other things that distort that free market decision. And so I wanted to talk about this recent summit hosted by China in Beijing where over 20 world leaders came, including Russia’s, Vladimir Putin, North Korea’s Kim Jong Un, and India’s Modi, and President Xi talked about pushing for a new global system, a cooperation among these non-Western powers. Some people are calling it the East Axis. Certainly signals alignment against the US and of course, military power’s on display. So it may be that this group decides we don’t want to buy gas from people aligned with the Americans, even if your gas is cheaper and better, we’re going to lock in gas.

And of course, there was a big announcement at that meeting that Russia and China are going to build this Power of Siberia 2 gas pipeline. The size of the deal is quite significant as reported, and it may not be that big in the end, but it could be the equivalent of about 36 million tons per annum. We talked about Canada maybe being 50. That’s about 10%, by the way, the 36 million tons per annum of the global LNG market right now. So this would really change the opportunity for Canada in Asia because now China’s going to be using gas from Russia, and even if our gas is cheaper, better, their government’s going to say, “Hey, we’ve made a deal with the Russians.” And so to me, this speaks to our federal government needs to be much more front in terms of working to get a foothold in Asia, especially if this alliance turns into something where it’s a trading block that’s harder for us to penetrate.

Peter Tertzakian:

I think it just comes back to being more assertive. And you say, well, 36 million tons per annum is big, and LNG Canada one is what, 14? So it’s a little under half of that. So we’re significant relative to that, but it just comes back to that notion of, “Oh my gosh, 36 million tons.” Therefore, we shouldn’t approach that market. Whereas my view is, okay, the market’s growing and there’s other actors in the gas game we can compete. And by the way, as buyers, I think the Chinese are smart. They don’t want to hitch their proverbial wagon to one big supplier like the Russians. They want diversification as well. And so again, it’s a mindset shift for us rather than being a market hostage and being meek about the competition, it’s okay, let’s get in there and let’s take some market share because we can.

We’ve got some of the best gas fields in the world. We’ve got some of the best environmental performance. We’ve got efficient ability to get into this supply chain. And our transportation distances relative to others are short and as you say, not constricted by choke points. So shouldn’t we be more assertive in terms of getting this kind of market share? Because oil and gas is one of the largest industries in this country as we struggle to figure out how to grow the economy, as you point out in the very front end of this conversation, this is one way of becoming an economic engine and becoming the fastest growing economy in the G7. These are vital commodities that are needed.

Jackie Forrest:

Now, do you think that considering all that, that it is a world where we’re moving to state to state deals on major commodities? We just saw Russia and China make this deal on gas. I see Mark Carney who was at the UN last week. I feel like he’s more orientated towards Europe generally. Maybe that’s just my perception, but should we really be jetting out to Asia and making alliances and talking about being a major gas supplier? Because my concern is that if these pipelines are built and other agreements are made, yes, there’s maybe good reasons to do business with Canada, but if the demand for the next five years is already tied up with existing deals, we need to get in there now. I’d like to see him going to Asia more.

Peter Tertzakian:

I think we’re starting to reopen those channels. From what I’m reading and hearing is that there has already been meetings at the ministerial level, and the prime minister may be meeting with President Xi to try and facilitate more trade. Increasingly, the Europeans even and others are realizing that, okay, if we can’t do business as usual with the United States, we necessarily have to look to Asia. And I believe Canada is, and I’d certainly support Canada trading more with Europe as well, and I think you’re going to see more of that.

Jackie Forrest:

Now, does that sort of activity help us in terms of our negotiations with the Americans? Let’s come back to that. This trade agreement with the Americans is still outstanding. We still don’t know what’s going to happen after the free trade agreement expires next year. Does that just anger the Americans, or does that help strengthen our position?

Peter Tertzakian:

I just think it helps strengthen our position. I am not sure if the Americans are laying awake at night wondering who we’re going to strike deals with on the other side of the world. I think that it’s incumbent upon us, as I said, to get away from being a perennial market hostage, to becoming an assertive competitor and ultimately have enough market power and vital commodities and things, certainly not just exclusively oil and gas, whether it’s agriculture, forestry, critical minerals, potash. I mean, the list is long where we could up our ambition and take sufficient market share to be of a negotiator status.

Jackie Forrest:

Hey, you got me on board, Peter. I want us to be a negotiator. I hope most of our audience and our politicians feel that way too, and our policymakers. In your paper, you have a bullet list of things, what will it take for us to up our ambitions and get to that level of negotiator. So what’s it going to take? What do policymakers and politicians and leaders need to do?

Peter Tertzakian:

Well, I think we first of all have to, as I said, change our mindset. That’s number one. That okay, we are going to up our ambition and that’s our strategy. So for example, merely saying we’re going to build a pipe to the coast and start exporting is an insufficient condition. You actually have to consciously say, “Okay, how much market share do we need to take to be, first of all, competitor and then negotiator?” And actually we’ve done those calculations and I’m going to save it for the next podcast or another podcast because it’s not as much as you think, that there’s ways of figuring that out. But it’s part of the strategic thinking, whether it’s oil, gases, et cetera or these other commodities. Okay, what do we need to do to up our ambitions? That’s step one. Then of course, what would it take to build these things?

And the major project office is working on that kind of thing, and hopefully we’ll speed things up so that we can facilitate these things, whether the commodities emerge to the new markets from a pipe or from a port or from airstrip. Then obviously there has to be some strategic thought as to who do we want our customers to be? So this is basically like a business strategy for the country, and that’s the way we need to be thinking. Yet you’d say, “Well, it’s a country, it’s not a business.” Well, no, I would disagree because as I said, state capitalism is the alignment of the country and its industries for strategic national interest in addition to the free market profit motive.

Jackie Forrest:

Yeah. Well, and that comes back to us having this alignment between our government’s provincial, federal, the Indigenous communities, especially on the West Coast as we learned several weeks ago when we had the podcast that the Indigenous folks on, especially in BC, have a lot of control over their lands as well. We really need to get everyone kind of rowing in the same direction and recognizing the threat that we need to address. So Major Projects Office like, boy, we’ve got a lot of expectations on them, but hopefully they can be a force to bring alignment amongst these groups and get these projects done quickly.

Peter Tertzakian:

Well, it’s certainly a start, and certainly I’ve had these conversations with others, and you get into a bit of a debate and some disagreement. I said, “Well, you can either choose to ignore what’s going on in the world.” You can choose to say, “I don’t like it.” And there’s a lot of people that would fall into that camp, but it’s not like we can ignore it. We either have to acknowledge it and figure out how to play in this new reality, or frankly, it’s not going to end well.

Jackie Forrest:

It’s going to end like it is right now, with our economy shrinking and other economies growing and us becoming less relevant. We really need to turn this around and grow the economy.

Peter Tertzakian:

Well, it’s a recognition too, that we can play, and we have a significant advantage over a lot of other countries because we have almost every natural resource under the sun, including the sun for renewables and things like that. So whether it’s domestically or internationally, we have vital resources that the world wants and needs, and these are vital resources that if we can get them to markets other than the North American market, we can have not only more competitive prices, we can have negotiating leverage in the event that countries or regions or cartels start to push us around. And ultimately, that leads to greater prosperity, such as we have enjoyed in this country for many decades, but now it’s a new era that we have to acknowledge.

Jackie Forrest:

Well, it’s clear for me, Peter, what we need to do, and I encourage our audience to go check out your articles. Now the question is, can we do it? And I hope-

Peter Tertzakian:

Well, we can.

Jackie Forrest:

I hope that we can.

Peter Tertzakian:

I’m really confident we can do it, we just need to get on with it.

Jackie Forrest:

All right, well, to our listeners, thanks for listening to this podcast. If you enjoyed this podcast, please rate us on the app that you listen to and tell someone else about us.

Announcer:

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Canada’s Energy Ambition: From Market Hostage to Global Player

Episode 297 transcript

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