Alberta, Pipelines, and Trade with Quebec

Economists as far back as the 16th and 17th centuries recognized the value of free trade. David Ricardo, an English political scientist, helped pave the groundwork for modern theories of trade with his studies on comparative advantages. Today, through expansion of global trade and agreements such as NAFTA, the free exchange of imports and exports has helped boost incomes and living standards around the world.

Alberta is certainly no stranger to global trade. Early in the 20th century, the prairie provinces grew to be known as the “Breadbasket of the World” due to the expansion of farming and the export of high quality grains. And of course, starting with Leduc #1 in 1947, Alberta has grown into a sizable player in energy exports—first crude oil, then natural gas, and now bitumen.

Fresh data show Alberta’s trade with the rest of the world continues to expand. The province’s $83 billion in exports between January and November 2011, the bulk of which is energy products, is up over 16% from the previous year. (This is still down from the record high value of exports set back in 2008, just prior to the collapse in crude oil prices).

But as 2012 kicks off, interesting new developments are stirring the pot for the future of Alberta’s trade position.

Particularly, opposition to new bitumen pipelines could threaten the ability of producers to get their product to foreign markets. The US decision to delay the Keystone XL pipeline last year was the first shoe to drop, and President Obama has until February 23rd to make a final decision on the project. More recently, the hearings for the Enbridge Northern Gateway project to pipe bitumen to the west coast for export to Asia has been running up against a storm of environmental opposition.

Could both pipelines end up being cancelled? It’s hard to say, but it certainly is possible. While many Albertans are frustrated—even angered—by the delays and blockages to pipeline construction, many others simply feel the potential for environmental disasters or oil spillage on the west coast is an unacceptable trade-off. The debate has the potential to turn very sour in 2012.

Yet this week, a meeting took place that should remind Albertans that there is more to our economy and our trade than selling bitumen to the world. Alberta Premier Redford met with Quebec Premier Jean Charest, and the meeting set a fresh new tone for warmer relations between the two provinces—each energy superpowers in their own right. Alberta-Quebec relations over the past few decades haven’t been exactly nasty, but they haven’t been especially warm either. The best way to describe it would be like two adult siblings—they don’t fight or hate each other, but they haven’t spoken in years.

During the meeting, Premier Charest stated Quebec is ready to back Alberta on developing a Canadian energy strategy. With Alberta’s hydrocarbons and Quebec’s hydro-electricity, the two jurisdictions actually have much more in common with each other than many may think. The words from Mr. Charest are a welcome change from the outright betrayal Alberta received from both Ontario and Quebec at the UN Climate Change talks in Copenhagen a few years ago. Alberta was tossed under the bus by her provincial sisters as being the biggest problem in tackling greenhouse gases.

Interprovincial trade data is frustratingly difficult to come by, and what estimates are out there are not up-to-date. But what we do know is that Quebec is a market of over 8 million people (over twice the size of Alberta). The state of Michigan, about the same size and industrial composition as Quebec, bought $4 billion from Alberta in 2010. It’s hard to make the comparison directly with Quebec, but Alberta’s exports to that province are probably considerable. The not-so-small matter of inter-provincial trade barriers remains a problem, despite years of half-hearted efforts by politicians to remove them. Still, any opportunities to increase trade between Alberta and Quebec should be pursued.

Quebec will never replace the opportunities to sell bitumen to China. Nor will stronger trade ties with any other Canadian province make up the difference if Keystone or Northern Gateway are somehow killed. The point is there are always alternatives