2015 Canadian Construction Overview Graphic


Sidekick or Leading Actor? Canada Must Decide (Part 2)

0 91 Economic

by Alex Carrick

Having set the scene in Part 1 of this Economy at a Glance, we'll move on in Part 2 to explore why Canada's economic prospects are more limited than what is being experienced south of the border.
Sidekick or Leading Actor? Canada Must Decide (Part 2)

For starters, the U.S. market as a destination for Canada's goods is no longer as assured as it was in the past.

In automotive products, Canada's proportion of U.S. foreign purchases has been in marked decline. Forestry product sales from north of the border to the U.S. have taken a dive.

Media attention devoted to those trends, however, pales in comparison with the brouhaha surrounding TransCanada's proposed Keystone XL pipeline expansion from Alberta to Cushing, Oklahoma. President Obama has refused to grant approval for KXL's construction. Into his second term in office, he's attempting to burnish his legacy as an environmental activist.

The Republicans are planning to introduce a bill to approve the Keystone project in Congress. It will pass easily in the House. In the Senate, it's almost sure to receive the 60 "yes" responses required to avoid a filibuster and authorize a vote.

But when the second tally is taken, it's not likely to reach the two-thirds threshold (67 votes) needed to circumvent a Presidential veto. Mr. Obama has already said that he will not agree to green-light the project, using the excuse that a Nebraska court ruling – with respect to the state's power to secure "right of way" − must be delivered first before he will make his ultimate decision.

There is speculation the Republicans may include a go-ahead for KXL in a future omnibus funding bill that will be much harder for the White House to reject.

As for the raw materials investment outlook within Canada, it's increasingly featuring setbacks that should be a source of considerable concern. The number of major resource sector projects that have been put on hold has grown alarmingly.

Some of the delays or terminations have been due to economic factors – for example, Oil Sands projects will undoubtedly come under scrutiny with the selling price testing the extraction cost.

Some are due to lack of public sector support and others hinge on a less than encouraging regulatory environment, made more difficult by environmental and aboriginal issues.

In Ontario, the mining leaseholder (Cliffs Natural Resources Inc. based in Cleveland, Ohio) of vast tracts in the Ring of Fire region north of Thunder Bay has abandoned plans for a multi-billion dollar chromite development. The company's cancellation statement included the unflattering comment that it might be decades before it would consider becoming involved again.

The Ontario government's failure to deliver promised infrastructure construction in the area (i.e., roads to potential sites) has been an obvious failing.

The prospect of ever-rising electricity costs in the province has also been a negative.

Malaysian oil-giant, Petronas (short for Petroliam Nasional), has – at least temporarily and possibly as a bargaining chip − stepped back from a commitment to build a world-scale LNG facility in northwestern British Columbia.

The company has cited worries over escalating costs – despite the Victoria legislature's introduction of a relatively favorable royalty regime. The fear of becoming too deeply embroiled in native land claims issues has also influenced the firm's decision.

As for regulatory "hoops", the most notable problems are cropping up in pipeline applications.

A misconception is emerging with regard to what lower oil company profits might mean for pipeline construction.

There are those who assert this will be their death knell. I would contend the opposite is more likely to be the case. Each staged drop in the price of gasoline is likely to be a spur to further crude demand, tougher emissions rules notwithstanding.

The need for pipelines, especially to supplant more dangerous shipments by rail tanker cars, will continue to grow. Many high-profile environmental activists have been slow to accept this reality.

Plus there's the need to service potential customers in countries other than the U.S.

Now for something that may be read as inflammatory.

Canada has a history of benefitting from and taking comfort in playing a "sidekick role", first with respect to our founding nations, Britain and France, then more recently (i.e., over the past hundred years or so), to the United States.

One consequence has been a tendency to shy away from decisions crucial to our own best interests.

If Canada is to be a truly grown-up nation, we must begin to think and act strategically.

I won't be the first to point out that Ontario's electricity shortcomings make little sense, in the context of already existing surplus power next-door to the east in Quebec, and potential vast capacity expansions next-door to the west in Manitoba.

An interweaving of oil and gas pipelines across the country, culminating on both the east and west coasts, would also be to our advantage.

Instead, what has become embedded in Canada is a reluctance to see the big picture and take bold steps.

In 1973, OPEC became an economic force world-wide when it instituted a thirteen-fold increase in the price of oil. Slightly more than forty years later, OPEC is still exerting an inordinate influence in world energy markets, albeit through a price cut this time.

What's the next "big thing"? The drastic reduction in U.S. dependence on foreign oil and natural gas, achieved through a nearly whole-hearted embrace of fracking technology, would seem to qualify.

Looking further ahead in this century, the availability of fresh water will almost assuredly become a more pressing issue. There was even a James Bond movie, Quantum of Solace, which adopted this theme. True to "007 tradition", it featured an evil villain who was engaged in hoarding.

When this situation comes to pass, Canada will be uniquely positioned as a leading player. There will need to be a coherent vision to realize what's most advantageous for Canadians coast to coast, while also fulfilling our responsibilities to the planet as a whole.

Since we've now talked about economic strategy, let's move on to the military variety as well.

Is Canada really capable of establishing dominance in its mineral- and energy-rich Arctic region? Successive governments in Ottawa must further commit to fulfilling their financial and on-the-ground sovereign roles.

That's only the tip of the iceberg. What about our Pacific zone? Canadians are hoping to sign up more Asian customers for their products. China is rapidly building up its naval presence in the ocean waters adjacent to Japan, South Korea, Taiwan, Vietnam and the Philippines.

The vast majority of Canada's military forces remain stationed in the eastern half of the country.

Out-of-date thinking has rarely been more apparent.

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