Canada Largest Producers And Exporters Of Energy Economics Essay

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Canada is one of the world's largest producers and exporters of energy. In 2008, Canada produced 19.3 quadrillion British Thermal Units of total energy, the fifth-largest amount in the world. From hydro dams to nuclear power plants to oil sands to natural gas, Canada's diverse energy system is a mosaic of source working together to provide the energy Canada need for her domestic energy consumption and the national industry support our economy directly, affects the livelihood of all.

Canada Energy Reserves

Canada is the largest producer of natural uranium, producing one-third of global supply, and is also the world's leading producer of hydro-electricity, accounting for 13% of global production. Canada also produces petroleum, natural gas, coal, sulphur, ethane and oil for energy.

According to the Oil and Gas Journal, Canada had 178 billion barrels of proven oil reserves as of January 2009, and a remaining established reserves of conventional crude oil at 1.5 billion barrels; exploratory and development drilling, as well as new enhanced recovery schemes, added total reserve of 130 million barrels. Canada is a net exporter of oil, with 2008 net export of 1 million barrels, almost all of the country export flow to the Unites States, and it is consistently the top supplier of U.S oil imports. Canada's oil production was 3.35 million barrel in 2008, Canada's oil production has steadily risen over the last decade, as new oil sands and offshore projects have come on-stream to replace ageing, mature fields. Canada consumed an estimated 2.32 million barrels of oil in 2008.

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Canada had 57.9 trillion cubic feet of proven natural gas reserves. Canada is the second largest producer of natural gas in the Western Hemisphere, after the United States. Canada is also an important source of the United States natural gas supply; in 2008, it exported 3.6 trillion cubic feet natural gas to the United States, representing 16 percent of United States natural gas consumption and 90 percent of total United States natural gas imports that year. Like the oil industry, Canada's natural gas production is concentrated in Alberta. Even though there have been some new conventional natural gas finds in Western Canada Sedimentary Basin, studies predict future natural gas production will likely centre on coal bed methane and shale gas deposits, and offshore natural gas fields.

Remaining established reserves of ethane is estimated at 762 million barrels as 2008. The majority of ethane was used as feedstock for Alberta's petrochemical industry. The remaining established reserves of other Non Gas Liquids: propane, butanes, and pentanes is 1014 million barrels in 2008, and the remaining established reserves of sulphur increased to 186 million tones, sulphur and other Natural gas Liquid demand are expected to gradually increase. The remaining reserves of all types of coal are about 37 billion tons. This massive energy resource continues to help meet the energy needs of Canadians, supplying fuel for about 59 percent of Canada's electricity generation. Canada's total coal production was 32.5 million tons of marketable coal, most of which was sub-bituminous coal destined for mine power plants. Canada's coal reserves represent over a thousand years of supply at current production levels. …. The export market for coal remained strong due to the continued, though reduced, demand in the Pacific Rim countries for steel production.

Canada had produced 66 398 gigawatt hours of installed electricity generating capacity in 2008. Canada produced 595 billion kilowatt of electric power while consuming 530 billion. Hydroelectricity represents the largest share of Canada's electricity generation, followed by conventional thermal and nuclear.

Canada Domestic Energy Consumption

Canada is one of the world's most energy intensive economies on a per capita basis. In part this is due to the country's size, climate, and weight of energy-intensive industries such as aluminium, pulp and paper. Canada ranked fourth in most total energy per person of all countries, 8,411 tonnes of oil equivalent per person in 2008. Canada's usage is much greater than most other developed nations, and well about other vast countries, and countries with harsh climates, nations such as Sweden, Australia and Russia. In 2008, the largest source of energy consumption in Canada was oil, 32 percent, followed by hydroelectricity, and natural gas; 25 percent. Both coal and nuclear constitute a smaller share of the country's overall energy mix, around 7-10 percent.

Canada Energy's export

Canada is the United States most important energy trading partner, enjoy an interdependent energy relationship, trading oil, natural gas, coal, and electricity. Almost all of Canada's energy exports go to the United States making it the largest, Canada sends over 99 percent of its crude oil exports to the United States, and it is one of the most important sources of United States oil imports. Canada also sent over 520,000 barrels petroleum products to the United States, the single-largest source of United States crude oil imports. Canada has extensive oil pipeline connections with the United States. Canada's company maintains connections between major Canadian cities and Chicago, seamlessly inter-grading the Canadian and United States components of its network. Canada also exported 3.9 trillion cubic feet of natural gas to United States annually. Canada exports over half its coal production, mostly to Asia, with the rest going chiefly to Europe and Latin America. Canada have an extensive electricity trade with United States, and the electricity networks of the two countries are heavily integrated, Canada exported approximately 33 Billion kilowatt of electricity to United States. And it's oil sands producers have attracted increasing attention from foreign oil companies, especially Asian companies seeking to satisfy growing demand in their countries and secure equity oil stakes. Korean National Oil Corporation purchased 250 million for crude oil, China's Sinopec purchased a 40 percent stake in an oil sands project, and the Chinese National Petroleum company own exploration rights in Alberta.

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Problems caused by Canada's energy

Economy

Canada's oil reserves are one of the largest oil reserves and supplier, brining great among of fortune, most economies with such abundant natural resources have actually experienced economic difficulties. This phenomenon referred to as the Dutch Disease, occurs when large exports of natural resources lead to a strong currency which, in turn, hurts local manufactures. The traditional Canadian manufacturing sector is facing challenges because of such factors as international competition, high input costs and a relatively strong Canadian dollar. The sector's economic difficulties coupled with large exports of natural resources, have led commentators to speculate that Canada may be experiencing its own version of Dutch Diease; an increase in revenues from natural resources will eventually de-industrialise a nation's economy by raising the exchange rate, which makes the manufacturing sector less competitive and public services entangles with business interests.

The Canadian economy is performing well, GDP is growing close to its potential, inflation is low and the federal government is generating budgetary surpluses. Furthermore, the percentage of unemployment is low. Nevertheless, the Canadian economy has been losing manufacturing jobs since the middle of 2003. Canadian exports are increasingly natural-resource-based. While Canada's main exports in recent years have alternated between the automotive sector and the machinery and equipment sector, energy was Canada's single largest export as of 2008. Vast amounts of resources are used in order to extract it from the ground, in an economy close to it full productive capacity, which Canada is, some production factors, such as capital and labour will not be available for other sectors of the economy as they are directed towards oil extraction. The resource sector thus crowds out the rest of the economy. Moreover, Canada's real trade deficit in non-resource goods had been widening in recent years. The rise in the relative value of the Canadian dollar since 2002 is a complex phenomenon but many analysts have attributed it, at least in part, to the rising price of oil. A recent working paper by the International Monetary Fund found a positive correlation between Canadian oil exports and the value of the Canadian dollar. Furthermore, an article in the Economist asserts that foreign exchange dealers now treat the Canadian dollar as a petro-currency, meaning that its value is strong correlated to the price of oil. The discovery of oil, as an it is an important quantity of a natural resource, it is often associated with large foreign direct investments and especially in a small open economy such as Canada's, with large export revenues. This inflow of money from abroad puts upward pressure on the domestic currency, which appreciates and thus makes other exporters less competitive by increasing the relative prices of their goods and service abroad. The inflow of resource money may also create excess demand in the domestic economy. The prices of production factors, such as labour, also rise, leaving some sectors of the economy unable to cope with increased production costs.

The Canadian economy is exhibiting many systems of the Dutch Disease: a rising resource-led export sector coupled with a struggling manufacturing sector and a rising currency. Contract to the Netherlands' experience in the 1970s, however, labour costs have not yet increased significantly. Rising labour costs were one of the main factors limiting the competitiveness of the Netherlands' non-oil exports. Unit labour costs, which increase when labour compensation increases more rapidly than labour productivity, have been relatively stable in Canada although there is clearly an upward trend since the beginning of 2005. A rising unit labour cost is usually a harbinger of inflation and a good indicator that there is excess labour demand in the economy.

Nevertheless, many export-oriented companies are using currency derivative products, such as currency options, which shield them from any negative impacts of currency volatility. Furthermore, plant closures and restructuring plans are usually long-term effect of the Dutch Disease. As the Dutch experience indicates, energy revenues can have long-term impacts on the economy.  The extent of the problem in the Netherlands became fully apparent only towards the beginning of the 1980s when the revenues from gas resources started declining. The other parts of the economy, which had been neglected, were unable to replace the sudden loss of gas revenues, and a period of slow growth and high unemployment followed.

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Environment

Coal Bed Methane are the gasses, mainly methane, formed in coal seams, The methane is currently add to natural gas in some areas of Canada to improve the power provided. Coal Bed Methane is formed through the biochemical and physical processes during the natural decay of plant matter into coal. The bacterial re-separation causes gasses such as methane, butane, propane, ethane, carbon dioxide, and nitrogen to form. Coal Bed Methane is most commonly found in areas with formerly high amounts of plant matter, such as the Southern area of Canada. In order for Coal Bed Methane to be refined into a power source, it needs to be flushed to the surface. Running water through the open Coal Bed Methane well separates the gasses from the coal. During this process, the water becomes highly sodic, because of the high concentration of sodium contain in the water. In many Coal Bed Methane developments, the water is pumped onto the ground, the water is disposed of by either flooding a piece of land or by misting it into the air. If the water is pumped onto the ground, it destroys the ecosystem by killing off plant life, and animals as of food chain effect. If it is misted into the air, it kills off plant life in a much larger area. IN addition, the water has a high amount of gasses left in it, terrorist would now have a new opportunities to great mass attack by discharging pipe of the contaminated water and light it on fire.

Coal Bed Methane is being considered for use mainly in Western Canada and the Maritimes. This technology which is used on a large scale in the United States, has been the cause of many complaints from both farmers and residents of the areas in which it was developed. The development of the Coal Bed Methane brings great dangers to the environment and unequal development to Canada's regional development. Company who disregards the environment safety and sustainability will have an unfair economic advantage.

Policy Implication

Norway's situation shall be used to help Canada to avoided the resource curse, and how it used oil revenues to strengthen its over economy. Canada need to limit wage increases to avoid an economy downturn. As noted earlier, rising labour costs exacerbated the loss of competitiveness of Dutch manufacturing companies. In Norway, salary increases were limited to the rate of growth in productivity of the manufacturing sector, partly owning to Norway's highly centralized wage negotiation system. This structure allowed employers and unions to consider the broader picture rather than yield to the demands of particular interests. Norway was thus able to avoid a situation where significant wage increases in the growing resource sector led to upward pressure on wages in the rest of the economy. A centralized wage negotiation system would almost certainly not be feasible in Canada because of very different traditions regarding labour negotiations. Nevertheless, governments can ensure that salaries within their sphere of influence are linked to growth in productivity in order to limit upward pressure on wages and prices.

Canada need to avoid excessive government spending in order to reduce the pressure on the domestic economy and the domestic currency, for example, the Norwegian government adopted fiscal policies that involved fiscal discipline, debt reduction and the establishment of a petroleum fund. When governments may be tempted to use resource royalties for large increases in public spending, such spending may result in inflationary pressures. In the Netherlands, public expenditures as a percentage of GDP rose by more than 10% in a decade. By 1977, Dutch government spending represented a larger share of GDP than was the case in any other West European country. Norway, on the other hand, was more disciplined in its fiscal policies.  Within Canada, the Alberta government has shown similar discipline, and has eliminated its net debt; it now has net assets exceeding $15 billion. It has also used some of the revenues from natural resources to lower the general level of taxation.

Moreover, setting up a fund for resource revenues may be one tool to protect an economy from the Dutch Disease. Because of the volatile nature of resource revenues, a fund can be used to even out government revenues between good and bad times. A resource fund also reduces aggregate demand and the inflationary pressures associated with it. A fund denominated in a foreign currency, as in the case of Norway, can also help in curbing a bullish domestic currency and the associated negative impacts on non-resource sectors. Non-resource sectors are often associated with positive externalities, and that a decline in these sectors results in spillover loss. In Norway, this loss may have been reduced because of the level of technology required for oil extraction. Unlike countries with more conventional energy reserves, Norway's offshore oil extraction requires much capital and technological expertise. Norway's oil sector is, therefore, associated with innovation and know-how. Furthermore, the capital-intensive nature of the sector has mitigated concerns about upward pressure on wages.

A similar argument can be made about Canada's oil sands reserves, which require a high degree of technological innovation and capital for their extraction, governments could try to minimize the negative impacts of the Canadian dollar on other non-resource industries associated with positive externalities.

With Western Economic Diversification Canada mandate to promote the development and diversification of western Canadian economy, it works closely with other federal departments, western provincial governments and industry to support the development of new technologies that have the potential to produce social, environmental and economic benefits for the West and Canada as a whole. As new processes and technologies to extract coal bed methane from deep coal being studied carefully to determine if development is both economically and environmentally feasible, Canada shall keep a close partnership with Western Economic Diversification Canada to mandate and support innovation in the West, especially of the development of technologies that permit the sustainable development of natural resources, in particular, the development of new technologies for geological storage of carbon dioxide and study on the feasibility of injecting carbon dioxide into deep coal beds as both a means of sequestering greenhouse gases and displacing naturally occurring methane. The ultimate aim of these studies is to develop new technologies that will result in reduced greenhouse gas emissions and allow for the recovery of clean burning methane for commercial use. In addition Canada's government shall post a public consultation process to address concerns about the impacts of coal bed methane development on communities, and modify their policy base on the public's concern, and the majority's benefit. Canada's federal government shall write guidelines and regulations for the industrial development of coal bed methane to ensure nation-wide environmental standards.

Conclusion

As noted earlier, rising labour costs exacerbated the loss of competitiveness of Dutch manufacturing companies. Canada needs to limit wage increases to avoid an economy downturn. A centralized wage negotiation system would almost certainly not be feasible in Canada because of very different traditions regarding labour negotiations. Nevertheless, governments can ensure that salaries within their sphere of influence are linked to growth in productivity in order to limit upward pressure on wages and prices.

Canada needs to avoid excessive government spending in order to reduce the pressure on the domestic economy and the domestic currency. Moreover, setting up a fund for resource revenues may be one tool to protect an economy from the Dutch Disease. Furthermore, Canada needs to develop new technologies that will result in reduced greenhouse gas emissions and allow for the recovery of clean burning methane for commercial use. In addition Canada's government shall post a public consultation process to address concerns about the impacts of coal bed methane development on communities, and modify their policy base on the public's concern, and the majority's benefit. The ultimate aim of these policies is to reduced greenhouse gas emissions and allow for the recovery of ozone while in attempt to keep the Dutch Diseases into its minimal effect to its domestic economy and labour capital.