Geography Asst. Prof. Philippe Le Billon looks at issues of governance and natural resources - photo ©iStockphoto / modernschism / vincevoigt / sidney9991

UBC Reports | Vol. 53 | No. 7 | Jul 5, 2007

A Raw Deal

Do Canadians benefit from our oil wealth?

By Lorraine Chan

When it comes to black gold, Canada may have more in common with Iraq than first meets the eye.

“Canada and Iraq are among the world’s five top oil reserves,” explains Philippe Le Billon, an assistant professor in the Dept. of Geography and a researcher at the Liu Institute for Global Issues.

Given that international oil companies are looking for oil reserves with a 15-to-30- year time horizon. “Canada and Iraq could be among the only oil countries with both major reserves and open energy sectors,” he says, adding, “There’s little appetite to nationalize the oil sector in Canada and lots of appetite to privatize oil in Iraq.”

Le Billon is one of a dozen scholars worldwide studying the intersection between violence, governance and primary commodities. A common thread in his research is what Le Billon calls the “resource curse.” This occurs when local populations receive little or nothing from their land’s wealth, but suffer the most when war or fighting erupts.

He has mapped logging disputes in Cambodia’s civil war and the brutal impact of ‘blood diamonds’ in Sierra Leone. A priority issue for him is oil and governance in conflict-prone regions.

Le Billon recently took part in a UN Security Council seminar organized by Belgium on natural resources and armed conflict, and mechanisms that could reduce the likelihood of future conflicts. One such measure, he says, could be to extend global standards for revenue transparency, which require government and industry to publish what they pay, earn or spend in the oil, gas and mining sectors.

In terms of energy security issues, about 80 per cent of the world’s oil reserves are under nationalized systems, says Le Billon. In these cases, government rather than private corporations control oil fields and reap the profits.

He says the major exceptions are oil fields in the Gulf of Guinea off Africa’s west central coast in the Atlantic Ocean; Alberta’s tar sands; and Iraq (if a new law opening the sector is passed). “But oil reserves in the Gulf of Guinea are less than half of those in Iraq and a third of those in Canada.”

Le Billon will be paying close attention to how major oil companies are poised to strike deals in Iraq. Prior to the 2003 U.S. invasion, the state-owned Iraqi National Oil Corporation (INOC) controlled the oil sector, which had been progressively nationalized from western companies in the 1960s. Since 2003, the U.S. has promoted legislation to open Iraq’s nationalized oil sector to foreign direct investment.

“Before, a major question for the U.S. was how could U.S. companies access the oil,” says Le Billon. “They could do that only if oil laws changed and they could find local allies. In other words, make them need your company.”

New legislation in Iraq will allow for a distribution of oil revenues proportional to the population of the provinces, explains Le Billon. It will also authorize regional authorities to develop new oil fields in their own area, rather than being subject to dictates from Baghdad.

“These measures are supposed to address regional concerns, notably Kurdish and Shia desire to avoid control by the central government. For the Sunni areas, largely devoid of known reserves, the law should also guarantee equal access to oil revenues.”

He says now with “civil war” in Iraq, the country’s 26 million people are, in effect, divided into three major groups. “Each region is seeking security by setting up militias and their own sources of revenue. One of their primary sources has been tapping oil through smuggling and extortion schemes.”

Unsurprisingly, notes Le Billon, oil has done little good for Iraqis. Until the 1960s, oil revenues largely flowed to foreign oil companies and then under Saddam Hussein’s regime oil fields were nationalized and revenues were spent on disastrous wars.

“Given the poor state of institutions and ongoing insecurity in Iraq, it is unlikely that Iraqis will soon finally benefit from the development of oil beneath their feet, either because of continued delays in oil production increase, unfair agreements passed with companies or corruption.”

And although Canada and Iraq sit at opposite ends of the spectrum in overall economic and social development, Le Billon says there are clear parallels with Canada’s liberalization of the energy sector.

“Do Canadians have cheaper oil prices than in the U.S.? No. The price of oil in Canada is the same as elsewhere. Do Canadians get the best deal out of their oil wealth? Well, this is a question that deserves serious consideration.”

In fact, says Le Billon, Canada’s energy and resource sector sees a pattern similar to that in many African countries, where foreign companies dominate and wealth is distributed through the market toward company executives and shareholders. “The only major difference is the level of embezzlement by local political elites -- something that largely relates to stronger democratic institutions and a more diversified economy.”

In addition, there are significant energy supply security aspects. Canada has committed under NAFTA to export 63 per cent of its oil and 56 per cent of its natural gas to the U.S. Canada is a net exporter, but ends up importing 1.2 million barrels of oil a day to supply Atlantic Canada, Quebec and Ontario.

A role model for Canada could be Norway, which developed and maintained control of its oil and gas in the North Sea. In 1990, Norway set up a petroleum fund now worth about $323 billion – compared to Alberta’s Heritage Fund of $16.3 billion.

“That’s twelve times more per capita in Norway than Alberta,” observes Le Billon. “Although the oil sectors are different in a number of respects, Alberta has produced about as much oil as Norway since 1976 when Alberta set up the Heritage Fund.”

Le Billon’s research has received support from the Social Sciences and Humanities Research Council of Canada.