1960 Lid Lifted On Gas But Policy Lack Keeps Oil At One-Half Of Potential

1961 OUTLOOK IS MIXED

By Carl O. Nickle

The lid was lifted in 1960 to free Western Canada's fastgrowing reserves of Natural Gas for sale into hungry markets in the United States. The results, a $750,000,000 capital investment program for 1960-61, for gas pipelines processing plants, field gathering systems, and gaswell drilling - a huge program 50% more costly than the St. Lawrence, Seaway System and to be carried out In half the time. By the end of 1961, Canadian natural gas will be flowing into the U.S. at a rate exceeding one billion cubic feet daily, and will be earning Canada (at border prices) American dollars at a rate exceeding 100 millions yearly.

1960 was a Year of Decision on Natural gas and thus set in motion a long awaited chain of events that will benefit in major degree the economy of all Canada. In 1961 there will be at least three perhaps four applications made for export of additional volumes of Canadian gas, to ensure continued growth of the Gas phase of Canada's resource industries in 1962 and later years.

Natural Gas and its byproducts, which had a gross value in the fields of Western Canada of only $15,500,000 in 1957, will record a field value of some $88,000,006 for 1960, and as estimated $182,000, 000 for 1962. By the mid 1960's, gas and byproducts should be accounting for over quarter of a billion dollars yearly (in terms of gross field value) to the Canadian economy, and as much as one billion dollars yearly (in terms of sales price to Canadian consumers, and border price on exports, after provision for processing, transport and distribution costs). Gas is thus now on its way to becoming one of the major products of Canada.

1960 was a Year of Lack of Decision so far as Petroleum is concerned. The year started with a production rate of Crude Oil and Gas Liquids at a record 604,000 barrels per day, but that lasted for January only. For the full First Half of 1960 Western Canada's production averaged just over 554,000 barrels daily and lost ground during the Second Half of 1960 to average only 519,000 barrels daily. Average for the full year 1960 is estimated at 535,500 barrels daily, a 16,400 barrels daily gain over 1959.

1961 will start with January production of Petroleum at about 602, 000 barrels, slightly under the level, of a year ago, and some 70,000 barrels daily above the December level. A large part of the gain is seasonal, and shortterm in nature. Part is due to intercompany exchange deals under which more Canadian oil is moving into the Puget Sound and Detroit Toledo areas, in sections of the United States which have pipeline connections to Canadian fields.

Unless Canada follows the lead of various other nations and adopts a National Oil Policy, designed to move the country closer towards selfsufficiency in petroleum, 1961 may be expected to follow much the same production pattern as 1960, with reductions in demand starting in February. Without a firm declaration of National Policy by the government, to give direction purpose and specific targets to oil production and market growth, 1961 will likely wind up with daily average production of between 550,000 and 560,000 barrels, or a maximum of 25,000 barrels daily more than in the year just ended.

In 1960 Canada consumed petroleum products equivalent to about 875,000 barrels daily of crude oil. Its own oilfields have a potential exceeding 1,100,000 barrels daily. Less than one-half the potential was actually utilized during the year. In fact, during the year, imports of crude oil and refined products into Canada increased, absorbed in balance all the increase in consumption in the nation plus making slight inroads on demand for domestic crude. (Consumption of Canadian crude in Canada in 1960 averaged about 423,000 barrels daily, down 5,000 barrels from the 1959 average consumption of 428,000 barrels).

Canadian fields, however, gained in 1960 in exports to the United States Puget Sound, Midwest and Detroit Toledo areas, with average exports about 112,500 barrels daily, a 23,000 barrels gain over the average 1959 exports of 91,500 barrels daily. (Of January 1961 is forecast 602,000 barrels daily, about 481,700 barrels is slated f or delivery to Canadian refineries and 120,300 barrels daily to American plants. Without an effective National Policy, these volumes will drop in months ahead).

Canada, it will be recalled, is a rarity among world nations. It has no formal National Oil Policy, neither to promote voluntary nor compulsory expansion of markets for domestic oil, despite the fact the nation is more than capable of selfsufficiency, has a net trade deficit on petroleum account alone of some $400,000,000 yearly, and a great need to boost its own lagging economy and to reduce its heavy international balance of payments deficit.

Well aware of Canadian Oil's economic and defence importance to the United States over the long term, the U.S. has exempted Canadian petroleum from the import quotas it imposes on offshore oil and products (thus helping make possible the increase in our oil exports to neighboring U.S. areas where Canadian crude is fully competitive with U.S. domestic oil). But meantime, Canada continues its 'open door' to imports, with neither tariff nor quota protection, and thus encourages a continuing whittling down of Canadian Oil's percentage of the domestic market, and continuing heavy trade and balance of payments deficits.

Back in July 1959, eighteen months ago, the Borden Royal Commission on Energy reported on the already apparent 'Oil Problem'. It recommended a production target of 700,000 barrels per day, which it felt could be reached by December 31st, 1960 by increased sales within Canadian and American market areas already connected by pipeline to Western Canadian fields. The government itself his never formally endorsed the Borden recommendations, and only informally (in recent months) has it made use of its National Energy Board in an effort win wider voluntary support from companies sharing the petroleum market in Canada towards broader use of domestic oil. In the absence of a firm official declaration of a National Policy, there is little hope that 1961 can show better than a 560, 000 barrels production average, a big 140, 000 barrels daily short of the target that Borden suggested for the end of 1960.

1961 offers a bright picture for Natural Gas, an uncertain future for Petroleum, But it may be assumed that Prime Minister John Diefenbaker and members of his government are being made increasingly aware of the nation's 'Oil Problem' by the fact gathering National Energy Board and by others. Effective action to make greater use of the existing transport facilities to market areas where Canadian oil now reaches, or if necessary, to Canadian markets now being fully supplied with foreign petroleum can provide the biggest single lift to the 1961 Canadian Economy, and the biggest single improvement to Canada's international trade and payments position. Canada's benefits in each area could be in terms of hundreds of millions of dollars yearly. These facts could well make 1961 the Year of Canada's Oil Decision, and thus radically alter the present outlook for the industry and the nation.