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Opinion: COVID-19 a chance to pivot away from oil reliance

As some provinces in Canada are beginning to show progress in flattening the curve , the next logical challenge is mitigating the economic impact of the COVID-19 pandemic, while preparing for Canada’s economic recovery.
Oil Refinery

As some provinces in Canada are beginning to show progress in flattening the curve, the next logical challenge is mitigating the economic impact of the COVID-19 pandemic, while preparing for Canada’s economic recovery.

The Canadian economy’s deeply entrenched reliance on its oil sector inescapably exposes the country’s economic recovery to uncertain global systemic factors, namely global crude oil prices.

The pandemic highlights the risks of the Canadian economy’s reliance on the oil sector, but also presents an opportunity to pivot away from such reliance through a carefully crafted economic recovery plan, focusing on accelerating the electrification of the transportation sector and improving internet connectivity.

The COVID-19 pandemic had caused factories to temporarily close their doors, and the corresponding self-isolation orders had reduced ground and air travels, resulting in a significant decrease in oil demand, which had driven down global oil prices. When talks broke down in early March, between Saudi Arabia and Russia, two of the largest oil exporting countries, Saudi Arabia claimed that it would increase overall oil production, triggering a price war and sending global oil prices into a free fall.

As the fourth largest exporter of crude oil in 2018, Canada has become a casualty of the suppressed global oil prices, caused by the ongoing Russia-Saudi Arabia oil price war, which is flooding the market with an overabundance of supply. Low oil prices are causing Canadian oil companies to respond by cutting pays and laying off workers. With global oil storage near capacity, there is little indication that global oil prices will return to a level at which Canadian oil production can thrive, at approximately $45 USD per barrel Brent on average to cover the cost of production, even after Russia and the Organization of Petroleum Exporting Countries (OPEC) have reached a deal to curtail oil productions by 10%. 

This further illustrates the vulnerability of Canada’s oil sector as a price-taker than a price-maker.

In the long-run, investors continue to hold reservation in the profitability of Canada’s oilsands sector. Meanwhile, in the short-run, the volatility in global oil prices is exacerbating the volatility of the Canadian equity market, which is already tumultuous due to the uncertainty around COVID-19. On March 18, 2020, for example, as Western Canadian Select (WCS) traded below $8USD per barrel, the Toronto Stock Exchange (TSX) closed down almost 8% , with the S&P/TSX Capped Energy Index down almost 12 %. Depressed global oil prices will impair the ability for Canada’s equity market to attract capital in its post-COVID-19 economic recovery, so long as the oil sector remains a significant part of the Canadian economy.

Prior to the COVID-19 pandemic and the impact of the oil price war, jobs in the Canadian oil and gas sector had already declined by approximately 20% from the peak of approximately 225,900 in 2014, to approximately 178,400 in January 2020. While the data is not yet available, employment in the oil and gas sector will expectedly continue to decline with depressed global oil prices. Most of these jobs likely won’t return after the end of the pandemic. Instead, COVID-19 economic recovery presents an opportunity to create more jobs in renewable energy and to expand renewable energy training programs after COVID-19.

As an example, even though Canadian provinces have set ambitious goals for the deployment of zero-emission vehicles (ZEVs), Canada lags behind other countries in electric vehicle manufacturing with no battery-electric vehicle produced in Canada. Instead of providing Canadian automakers with loans that end up getting written off, as the federal government spanning two political parties has done for the 2008 global economic meltdown, the federal government should consider expanding Canadian automakers’ electric vehicle production capacity, should there be a capital injection for the automakers. Vancouver-based Navius Research projects Canada’s ZEV economy could consist of more than 1.1 million jobs, substantially higher than the peak employment of 225,900 in the oil and gas sector.

Transitioning the economy away from oil production will also have significant impact on greenhouse gas (GHG) emissions reduction. In 2017, the oil and gas sector was the largest source of GHG emissions, accounting for approximately 27% of the total national emissions. By contrast, the energy sector contributed to approximately 10% of Canada’s Gross Domestic Product (GDP) in 2018. COVID-19 presents an opportunity for Canada to pivot away from the emissions-intensive industry. 

On the demand side, COVID-19 presents an opportunity for Canadian consumers to wean off oil reliance. Even though pandemics generally represent temporary shocks in the economy, COVID-19 has the potential of causing a structural change to our economy, by accelerating the transition to an economy in which technology replaces transportation, and telecommuting becomes the norm. In the weeks of self-isolation, those who are fortunate enough to have the ability to work remotely have become more accustomed to this concept. Students are also beginning to feel more comfortable about online learning.


This involuntary experiment provides the world with valuable information on several important questions: how many in-person meetings can be replaced by conference calls, how many conference calls can be replaced by email exchanges, and how many email exchanges can be replaced with shared working documents? In the United Kingdom, for example, fuel expenses have decreased by 55 per cent as of April 1, 2020. Similarly, Vancouver, Calgary, Edmonton, and Toronto are all experiencing less traffic on the roads.

As business owners and workers transition from their stores and offices to their homes during the COVID-19 pandemic, their residential internet connectivity must have sufficient upload/download speeds to handle the processing of documents electronically and virtual communication sessions. This is particularly challenging for remote communities. With an expanded $107-billion stimulus package, including $52-billion in financial assistance to individuals and businesses, the federal government should consider working with internet service providers, on improving internet connectivity and providing relief to businesses and individuals through payment assistance, because evidently internet connectivity now matters more than ever.

Improved internet connectivity at affordable rates will encourage temporary work arrangements to become permanent arrangements, while making the temporary decline in commuting permanent. The impact will be more pronounced in remote communities, where there is less public transportation infrastructure, and residents rely more heavily on their personal vehicles in their commutes. The transportation sector represented the second largest source of GHG emissions in 2017, accounting for approximately 24% of total national emissions. By accelerating the transition into a new economy in which telecommuting is the norm, Canada is able to reduce its GHG emissions significantly.

COVID-19 presents an opportunity for the federal government to address the two largest GHG-emitting sectors in the Canadian economy. Although the effect of the COVID-19 stimulus package is still being observed and measured, it seems promising that the monetary amount is significantly greater than the $45-billion that the federal government provided during the 2008-2009 global financial and economic crisis. With this level of commitment in resources toward the COVID-19 relief effort, the federal government should seize this opportunity in subsequent economic recovery efforts and maximize the impact of every dollar.

Eugene Tseng is a resident of Burnaby.