Commentary: Energy and Canada’s national interest

No more than a sliver of Canada’s natural resources should ever be controlled by non-democracies

By Mark Milke
Saudi Arabia's Crown Prince Mohammed bin Salman attends a meeting during the G20 Summit in Osaka on June 28, 2019. Getty Images photo

Canadians are used to peace and relative prosperity vis-à-vis the rest of the world and are occasionally naïve about it. They assume it is a regular state of human affairs in history rather than the exception.

Canada is an exception. That is in large part because the country sits “atop” North America and is surrounded by three oceans with one neighbour, the United States, a democracy and a superpower. That reality has always given serious pause to any other country that would think of invading Canada.

During the height of the Cold War, for example, the Soviet Union was never going to invade Canada in the manner it did Czechoslovakia in 1968, or at all. There were easier targets to invade directly, or disrupt by proxy.

I bring up history because a self-satisfied, cocoon-like approach to thinking leads some Canadians to be glib about our lucky position in the world. Such thinking also leads to flippancy about the critical usefulness of energy—oil and gas still being the bulk “share” of that concept—to Canada’s national interest.

An example arrives regularly when an energy firm from some foreign country, say Saudi Arabia’s government wealth fund or some other nation with a regressive regime, invests in a Canadian energy company. This occurred in the first quarter of 2020 when Saudi Arabia’s sovereign wealth fund, the Public Investment Fund, bought shares in Suncor Energy (US$481 million worth) and Canadian Natural Resources ($408 million).

Ignore for a moment that it was the Saudi government that increased oil production dramatically in early 2020, which collapsed the world oil price and made Canadian resource company shares cheap to buy. (The same Saudi fund recently sold the Suncor shares for US$1.2 billion.)

Skip past that and consider when such investments are made, the social media universe lights up with glib comments along the lines of “I guess all that concern about tyrannies having too much control over the world’s oil and natural gas production is misplaced. After all, now that the Saudis own part of a Canadian company, tyranny oil now exists in Canada.”

This is glib and also a rudimentary failure of analysis.

When foreign funds buy small chunks of Canadian energy companies, that does not somehow magically change Canada from a constitutional monarchy to a banana republic or make Canada’s Parliament a rogue regime. Such purchases also do not somehow corrupt Canada’s longstanding tradition of the rule of law, or independent courts.

Also, such purchases, when minimal, do not yet allow a questionable foreign government to disrupt Canada’s energy supply chain, as happened when Russia cut off Ukraine’s natural gas in the winter of 2009. Nor do such minimal ownership shares “hook” a country on energy from autocracies in the manner that Russia’s Nordstream 2 natural gas pipeline, will soon make Germany more and not less dependent on a country, Russia, where the regime murders journalists and critics and tries to do the same to opposition figures.

That noted, if a non-democratic foreign country or a combination of autocracies and tyrannies bought up not just slivers of Canadian-based energy companies but controlling interest in multiple such firms, then there would be legitimate questions raised about whether this was wise and in Canada’s national interest.

Back in 2012, when China’s state-owned CNOOC was proposing to buy (and eventually bought) Nexen Inc., for US$ 15.1 billion, there was a legitimate concern about a foreign entity controlled by a non-democratic regime getting a toe-hold in Canada’s energy sector. (In fact, that purchase followed another China state-owned acquisition, Sinopec’s purchase of Daylight Energy for $2.1 billion in 2011.)

The best free market argument against such deals at the time was that Canadians should oppose a foreign state-run oil company buying up Canadian resource companies for the same reason Canadians should oppose the return of Petro-Canada as a state-owned oil company: because nationalized companies are inefficient and far too subject to political directives rather than market forces. (They are also less environmentally friendly, as when the owner of a company is also the regulator of a company, i.e., the state, there’s a conflict of interest. How do government regulators force a government company to clean up if the same government does not wish to spend the money?)

The recent Saudi government fund purchases seem opportunistic while the Chinese acquisitions seem more long-term. Thus far, neither buys fundamentally change Canada’s institutions or on-the-ground realities, though the two key words are “thus far.” The current regime in Beijing is aggressive in advancing its own interest, including China’s national interest as the Communist Party of China defines it.

The occasional opportunistic buying of slivers of shares in Canadian oil companies does not turn Alberta, or the rest of Canada, into an autocracy or into a tyrannical dictatorship. In contrast, it does matter immensely if vulnerable democracies—Ukraine, Poland, Germany—are literally too physically dependent on oil and natural gas pipelines from suppliers where the governing regime is wolfish.

The critical history lessons for Canadians to grasp are: natural resources are used as political weapons by some regimes and it is naïve to think otherwise; that should mean that no more than a sliver of Canada’s natural resources should ever be controlled by non-democracies; and oil and natural gas should always be looked at as part of Canada’s national interest though few people think in those terms. (Americans, as a counter-example, always do.) Also, hampering Canada’s oil and natural gas sector, will, worldwide, allow autocracies and tyrannies to garner even more market share than the nearly half the world’s existing oil and natural gas production that currently flows from well in such countries.

To wit, one eye should be kept on regimes that do not have Canada’s best interests at heart, flippancy in analysis should be avoided, and Canada’s oil and gas firms, whether majority-owned by Canadians or liberal democratic allies, should not be forced to end exploration, production and exports any time soon. The opposite should be the assumed policy.

Mark Milke is with the Canadian Energy Centre, an Alberta government corporation funded in part by carbon taxes, and co-author of the report, The 2021 Tyranny Index for Oil and Gas.