Energyphile Story: Long Way Around
In this episode, we showcase one of Peter’s Energyphile stories “Long Way Around.”
In the preamble to the story, Peter and Jackie talk about Canadian energy security for oil. A Strategic Petroleum Reserve (SPR) for Canada’s eastern provinces would have helped during the 1970s oil price shocks, but is it still relevant today? Should the Energy East oil pipeline be reconsidered as a way to increase Canadian energy security?
The Energyphile stories are also available on numerous podcast apps, including Apple iTunes Podcasts and Spotify.
Content referenced in this week’s podcast:
- See “Long Way Around” and other Energyphile stories
- History of Canadian Crude Oil Imports (2010 to 2021) by the Canada Energy Regulator (CER)
One day, about 15 years ago, Peter was reading through some old newspapers thinking about the energy security issues Canada and the world had faced back in the 1970s. He was doing work for what would become his first book A Thousand Barrels a Second, which was about response to price shock and energy supply issues.
He came across a story that made him do a double take. During the 1973 Arab-Israeli War, Arab members of the Organization of Petroleum Exporting Countries (OPEC) imposed an embargo against the United States in retaliation for the US decision to resupply the Israeli military and for leverage in the post-war peace negotiations.
This embargo affected Canada too. “What happens when you have an oil shortage is that countries start hoarding, which is what happened,” explains Peter. “So, every country for themselves.”
Despite being a resources-rich country, with more oil produced than consumed (even back then), there was no way to ship western Canadian oil to eastern Canada.
The solution? “Basically, we shipped oil from Alberta through the Trans Mountain pipeline (which was active back then), hired some Greek oil tankers which took the oil from Vancouver down the west coast of United States and Mexico, through the Panama Canal, all the way up around Florida, all the way up to the east coast to be delivered to central Canada. Totally absurd, which is why it’s called the Long Way Around. So, the story is the story of the sea captain, fictionalized, that is carrying the oil in the tanker the long way around. But it has definite lessons for today.”
Nellie McClung is credited with saying “People must know the past to understand the present, and to face the future.” Actually, there are dozens of quotes offering the same advice in one form or another.
The lesson from The Long Way Around, begs two questions for the future:
- Does Canada need a strategic petroleum reserve?
- Should Canada consider building the energy east pipeline that would connect western Canada with our east coast?
Jackie and Peter spend time talking through these concepts in this episode.
“We’re moving away from oil in the future, so do we need these now do you think?” asks Jackie.
“We’re moving away from oil but it’s going to take decades. Central Canada is going to need oil, if not for vehicles, then for industrial purposes,” responds Peter.
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Transcript 165
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. So today, we are going to talk about one of the stories that’s in my energy file collection, “The Long Way Around.”
Jackie Forrest:
Yeah. And last summer, we actually had a new story that you had put out about The McLaughlin Carriage Company, and we got really great feedback on that, so we want to-
Peter Tertzakian:
Yeah.
Jackie Forrest:
… have a little introduction before we get into the story today to talk a little bit about the story and why you chose it. But just for background, maybe tell us very quickly what it’s about.
Peter Tertzakian:
Yeah. The Long Way Around is one of 10 stories that’s in my short stories book, “The Investor Visit.” And it’s the one that is about energy security, which is also topical today. It’s about energy security in 1973, when the supply of oil from the Middle East was curtailed, causing shortages in the West. Basically, the Arab Oil Embargo. And it’s because we are not energy secure in this country, Canada. We don’t have central Canada getting its oil from the west, other than a very small fraction. Most of it comes from the United States today. And historically, it’s come from abroad by tanker into ports of Montreal and the east coast. So what happens when you have a real oil shortage is that countries start hoarding, which is what happened. And so every country for themselves.
Peter Tertzakian:
Canada, which notionally is self-sufficient in oil because we produce more than we use. We export most of our oil, even back then. Basically, we shipped oil from Alberta through the trans mountain pipeline, which was active back then. We hired some Greek oil tankers, which took the oil from Vancouver all the way down the west coast of the United States and Mexico through the Panama Canal, all the way up around Florida, all the way into the east coast to be delivered to central Canada. I mean, it just seems really absurd, which is why it’s called The Long Way Around. And so the story is the story of the sea captain fictionalized that is carrying the oil in the tanker the long way around, but it has definite lessons for today.
Jackie Forrest:
I think people are always curious. How did you find this story?
Peter Tertzakian:
Well, actually, I was reading through old newspapers when I was thinking about energy security in the 1970s. And, of course, when I wrote my first book, A Thousand Barrels A Second, which was very much about how we respond to energy price shocks and energy security issues, that’s where I found it. And so it stuck in my mind, the story, basically in how absurd it is, that a country that is so rich in its own resources does not have full energy security within itself. And it has to resort to these sort of extreme measures to be able to provide for its own people a vital commodity during times of crisis.
Jackie Forrest:
Okay. Well, here’s a question. Do you think we need a strategic reserve now? I mean, we might have back then, but things have really changed, right? With the growth of US production, we are now much less dependent on offshore crude oil in our eastern markets. For example, in 2010, over 800,000 barrels, a day of crude oil was imported from offshore. And today, offshore is so small at the 2021 average numbers, we’re 140,000 barrels a day. And that’s because we’re getting a whole bunch from the United States now. And we’re also getting more from Canada as western Canadian production has grown. There’s been some changes to the pipeline, so there’s more Canadian oil getting in, and we are also talking about moving away from oil in the future. So do we need it now, do you think?
Peter Tertzakian:
Well, we’re moving away from, let’s work backwards. We’re moving away from oil, but it’s going to take decades. Central Canada is going to need oil, even if not for combustion in cars, for other industrial purposes. So that’s point number one. Point number two, yes, there’s been a major shift towards US oil being imported versus, say, Saudi oil or Nigerian oil. And that’s good to the extent that you don’t have a crisis because it’s human behavior, whether it’s energy, or as we saw with vaccines, that when there’s a crisis countries start to hoard. So we have no idea how a major supplier to Canada, friendly as they are today, is going to respond if or when there is a crisis. So we are very dependent upon the United States. And still, the bulk of the oil that is consumed by central Canada still transits through the United States or originates in the United States. And we’ve seen still unresolved, it’s just gone quiet a little bit for now the whole line five issue through Michigan.
Jackie Forrest:
Right. Yeah. No, you’re right. And if that were to get cut off, well, we got big problem. Okay. Well, hey, let’s talk about one more topic around this, Energy East. Remember that? That was a pipeline project that was proposed to move more Canadian crude to the east. Now, to me, that might make more sense than building a bunch of tanks. That’s one option, build a bunch of tanks, a strategical reserve like the Americans have.
Peter Tertzakian:
Oh you mean a strategic petroleum reserve, right.
Jackie Forrest:
Yeah.
Peter Tertzakian:
Yeah.
Jackie Forrest:
But we could just create a conduit that’s on Canadian soil that gets to the east. And by the way, my summer reading project has been to read The Last Spike, which was talking about-
Peter Tertzakian:
Pierre Berton, yeah.
Jackie Forrest:
… the importance of having a Canadian railway. It was much cheaper to go through the US.
Peter Tertzakian:
US.
Jackie Forrest:
And there was a lot of debate around that.
Peter Tertzakian:
Oh, sure.
Jackie Forrest:
And it was very difficult to build. And we’ll come back to that. There’s a lot of learnings from reading that book. We’ll come back to that, but this is to the same point. Instead of having these tanks in eastern Canada, we could just build our own pipeline on our own soil so we can control it. But as you know, that project was canceled. It was supposed to be something like a $15 billion pipeline, but in 2017 it was canceled. Now with what’s going on in Europe, there has been some calls to get that project going again. Do you think it makes sense from an energy security perspective and to help western energy security like Europe to rethink about that pipeline?
Peter Tertzakian:
Well, I do if it’s done quickly and expeditiously. If it’s going to take 10 to 15 years to permit and build, no, forget it. It’s not worth it. These issues will be resolved one way or another, hopefully, by that timeframe. By the way, actually getting back to your Last Spike and the importance of the railway going through Canada, the other big debate was a natural gas main line, not oil.
Jackie Forrest:
Right. Yeah.
Peter Tertzakian:
And that was also initially proposed to go through the United States because it was shorter, but it was decided it should go through Canada to maintain our energy [inaudible 00:06:39] of the natural gas. If you want my prediction of what could happen actually, is that the natural gas mainline will be uprated, potentially expanded to carry more natural gas because the Europeans are wanting more LNG. It can be done quickly if the regulatory framework is put in place to expedite these things to get permitting, whether it’s oil or for gas. But if it’s going to take 15 years, 10, 15 years, forget it.
Jackie Forrest:
Yeah.
Peter Tertzakian:
It’s got to be done with conviction. And they can do it in China. They can do it in all sorts of other countries in a couple years. So if we put our minds to it, yes, we can do it. But I don’t know. I don’t sense that there’s a lot of conviction.
Jackie Forrest:
Right. Hey, just as a side note, Energy East actually plan to reuse… there are some natural gas pipelines that aren’t being used today in that main line that’s on Canadian soil, which was a very smart move to make back in those days. And that pipeline was going to reuse some of the unused pipes. So there maybe is a way to do it more quickly because there’s existing infrastructure.
Peter Tertzakian:
Yeah. It’s not the natural gas mainline. It’s actually plural because there are several pipelines in the trench, and some of them aren’t being used.
Jackie Forrest:
And what about the strategic petroleum reserve?
Peter Tertzakian:
We don’t have a strategic petroleum in this country. Why not? Because the strategic petroleum reserve was implemented in all of the international energy agency participant countries. Following the oil price shocks, the only two countries that did not do it were Norway and Canada because of the belief that we were self-sufficient. I don’t know. There isn’t a lot of history documents, primary sources that I found on why we didn’t do it. But today, basically there is no plan B if there is another oil crisis. And if the United States basically says, “Sorry, we need all the oil for ourselves. None for you, Canada,” then we’re back to the same story that is in The Long Way Around.
Jackie Forrest:
And with that, we’ll turn to the story. And we hope that you enjoyed this discussion, and you enjoy the story.
Announcer:
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