Oil and Gas Policy in Canada, 1947–80

Key Terms

Price controls Restrictions that a government sets on the price of specific goods. Price controls are usually a short-term measure to control the affordability of the goods.

Context

The oil industry in Canada has been subject to government regulation for nearly its entire existence. The Leduc discovery of 1947 showed — for the first time — the extent and value of Western Canadian oil and gas resources. The Canadian oil and gas industry grew rapidly from 1947 to 1973. During that time, the international price of oil was low and remained stable. The world market was filled with cheap, reliable oil from the Middle East and North Africa. However, demand for this oil was always higher than supply. Federal government tax and trade policies therefore encouraged the development of local sources.

Canada’s population and its resources are unevenly distributed across the country. Most oil and gas reserves are in Western Canada. But more than half the national population lives in the Windsor–Quebec City Corridor. Eight out of Canada’s 12 largest metropolitan areas lie several thousand kilometres from the nation’s chief fuel source.

Getting Western Canadian oil to Eastern Canadian markets has always been the main challenge for industry and government. Reliably transporting large quantities of oil overland across so great a distance is difficult, complicated and expensive.

Creation of a Protected Market

The federal government created the National Energy Board in 1959 and the National Oil Policy in 1961 to address these supply problems. The solution was that Quebec and the Atlantic provinces would continue to import oil by ship from the cheapest foreign sources, while all of Canada west of the Ottawa Valley would get its oil and gas from Alberta, Saskatchewan and British Columbia. Shielding the western market from competition gave Canada’s oil and gas industry a protected market in which to grow. During this period, the federal government led in pipeline construction to move oil across Canada and to the United States. The Leduc discovery of 1947 revealed that Canada was an oil-rich nation, and the government of Alberta adjusted its royalty and production rates to reflect this new reality. For its part, the federal government regulated exports and limited oil imports from 1961 onward. This arrangement allowed for the rapid development of the industry. It also led to higher prices for producers and consumers of oil products.

Oil Crises of the 1970s

The federal government introduced price controls one month before the Oil Embargo of October 1973. In response to American support of Israel in the 1973 Yom Kippur War, the Organization of Arab Petroleum Exporting Countries banned oil sales to the United States and its allies. This caused both a rapid price increase and a global oil shortage. The global oil crisis that developed in 1973–74 hurt Canada’s economy, which depended on cheap oil imports from the Middle East and North Africa.

Though oil had increased in value, Canada’s oil industry was largely owned by American companies. Canada was exporting oil to the United States at a fixed price and importing oil from foreign sources at an increasing price. This was a strange position to be in: Canada essentially had two oil markets. Canada was a net exporter of energy but a net importer of oil.

The first oil crisis exposed the problems with this system. Consumers as well as domestic producers of oil were at a disadvantage. Even though the cost of oil was increasing globally, Canadians were not reaping much of the benefit. From 1973 onward, the federal government worked with the governments of oil-producing provinces to increase the price of Canadian oil. By 1979, the domestic price was roughly 85 per cent of the global price. A second oil crisis in 1979–80 caused the world price of oil to more than double over the course of a year. At the same time, a global economic recession had begun, adding to the stress placed on the Canadian economy.

Government Response to Oil Crises

The government of Pierre Elliott Trudeau responded to the oil crisis of 1973–74 in several ways.

First, it set limits on the price that consumers could be charged for oil.

Second, it began building a plant to extract synthetic oil from oil sands. This was still a relatively new and expensive process. Recognizing the potential value of this form of oil, the federal government entered into a joint enterprise with the governments of Alberta and Ontario, as well as private industry. This effort created Syncrude, whose processing plant was built from 1974 to 1978 in Mildred Lake, Alberta (see Megaprojects). Syncrude has since become the largest single-source producer of oil in Canada.

Third, Trudeau’s government created Petro-Canada, a national oil company.

The national energy policy of the 1970s focused on developing local sources, investing in high technology and coordinating with provinces to regulate the domestic price of oil. The minority Liberal government received the support of the New Democratic Party. Both parties agreed that energy security and self-sufficiency were of strategic economic importance. This laid the foundation for the National Energy Program, introduced in 1980.