When oil becomes an election issue it is rarely good news.
After Joe Clark’s minority PC government was defeated in 1979 over gasoline taxes in a budget, the subsequent Liberal administration introduced the National Energy Program. In 2008, Ed Stelmach’s Alberta PCs campaigned on the New Royalty Framework and won big. Earlier this year Alberta’s new NDP government promised higher corporate taxes and a royalty review if elected. The taxes became law July 1 and royalties will hopefully be clear soon.
Historically, the issue has been revenue; producers are excessively profitable, consumers should pay less and government must collect more. Taxes and royalties have gone up and down but, eventually, industry has been left with sufficient cashflow to maintain and grow the business. However, on multiple occasions, levies were raised first then cut later only because of devastating economic outcomes.
Oilfield services (OFS) is usually the first casualty of major energy policy changes. Often OFS job losses and bankruptcies provide clear signals policies are damaging. But as a key stakeholder, OFS has yet to figure out how to prevent the damage.
The essence of the oil sands debate this election is whether output should be allowed to grow. Some don’t want oil sands produced at all. NDP leader Thomas Mulcair, currently leading or tied in public opinion polls, is avoiding being this clear, preferring to dodge and weave on major pipeline projects.
While the outcome won’t be known until the votes are counted on October 19, there is good reason to be concerned whether this giant economic driver of the modern Canadian economy will grow at past levels anytime soon, if ever.
Oil sands have been politicized for years. Fierce opposition to all four major pipeline proposals to carry bitumen to tidewater and global markets have delayed them all. Energy East is a significant political issue in Quebec while Northern Gateway and Kinder-Morgan/Trans Mountain are vocally opposed in B.C.
Canada is the world’s fifth largest combined oil and gas producer. Of all major hydrocarbon producing jurisdictions, Canada is the only one facing active and vocal domestic and international opposition to gaining international market access for its crude, for the sole purpose of lowering global emissions. Related: Germany Struggles With Too Much Renewable Energy
What turned up the intensity of the election debate was star Toronto NDP candidate Linda McQuaig’s comments on national radio, when she stated that for Canada to meet its future climate change obligations, “a lot of the oil sands oil may have to stay in the ground.”
Why is McQuaig a star NDP candidate? Because she has authored multiple books criticizing capital markets, big business and pretty well everything that makes money.
The inside cover from McQuaig’s 2005 book, It’s the Crude Dude: War, Big Oil and the Fight for the Planet, reads in part, “As surely as smoking causes cancer, gas-guzzling SUVs are hurrying us towards global climate change. In the face of this potentially devastating threat, the world has moved with unprecedented speed to try to head off disaster. Only a small group is resisting. But in its ranks are the most powerful corporations on earth, well connected to the most powerful governments on earth. The outcome of this titanic struggle — the world versus the oil lobby — will likely determine nothing less than the future viability of the planet.”
Other notable anti-corporate titles by McQuaig include, Behind Closed Doors: How the Rich Won Control of Canada's Tax System ... And Ended Up Richer; The Quick and the Dead: The Wealthy Banker's Wife: The Assault on Equality in Canada; All You Can Eat: Greed, Lust and the New Capitalism; and, get this; Billionaires' Ball: Gluttony and Hubris in an Age of Epic Inequality.
Outrage over McQuaig’s comments was immediate front page news. NDP Leader Mulcair jumped to her defense, claiming she was taken out of context. But the actions of two of McQuaig’s NDP ideological soulmates – Mulcair and Rachel Notley – should cause oil sands proponents to be concerned.
On August 12, Mulcair announced that he would include emissions from the contents of the pipeline in any regulatory decisions. He said, “An NDP government would bring in a credible, thorough environmental assessment process that will include measuring greenhouse gas emissions. We will start the process over again with a project like Energy East and find out whether or not it can be accomplished safely for the environment and the economy.”
So, while Mulcair didn’t say no to Energy East or expanded oil sands development, nobody can possibly determine the NDP definition of yes. Or when a decision might finally be made. Related: Is This The Best Play In U.S. Oil?
Linking pipelines to emissions is the crux of criticisms by opponents of the National Energy Board (NEB) pipeline hearing process. They want the NEB to include the environmental impact of the crude oil carried in the pipe. The NEB has said consistently it is not within the board’s mandate to decide whether or not society should produce and burn oil, nor has it ever been.
This is a technical and somewhat arcane argument for Joe Public. But it is of critical importance to industry. A pipeline hearing process that would now have to dovetail with climate change legislation - and, as McQuaig’s book cover stated, “determine nothing less than the future viability of the planet” - would require a complete rebuild of the NEB’s enabling legislation and hearing process, plus supporting environmental policy. This could take years.
Meanwhile, a complete rebuild of environmental legislation is what’s underway in Alberta. On August 14, the Notley administration revealed the mandate and composition of its promised environmental and climate change review panel. It includes two industry representatives but also the environmental organization Pembina Institute and Unifor, a major labor union.
Alberta Environment Minister Shannon Phillips vowed “real action” to reduce emissions linked to global warming and climate change. She was quoted as saying Albertans “have waited far too long” for leadership. The framework will be hammered before December when Premier Notley attends the United Nations climate conference in Paris. An August 14 Calgary Herald article read, “The minister (Phillips) said the climate change panel will provide advice on how to price carbon, how to grow the renewable energy sector, how to promote energy efficiency and how to reduce the province’s reliance on coal-fired electricity.”
Panelist Stephanie Cairns of the Pembina Institute, who lives in B.C., was pressed by reporters to comment on whether the oil sands must indeed stay in the ground. She responded, “I think that’s part of the conversation we’ll have to have.” The Canadian Association of Petroleum Producers (CAPP), generally supportive of this process if for no other reason than to achieve the policy clarity its members require, cautioned, “We must be mindful of the cumulative costs of government policies, in light of royalties, climate and other policy changes, to keep this industry healthy and to protect the jobs of Albertans.” Related: Oil Prices Must Rebound. Here’s Why
That the NDP will form the next federal government is unknown. That Linda McQuaig is going to become Canada’s next minister of energy remains remote. Of the long list of challenges the industry faces daily, oil sands becoming an election issue, while important, is not at the top.
Nor is NDP policy necessarily hopeless if it is appropriately balanced. Perhaps increased carbon taxes will be offset with reduced royalties or taxes as a way to drive lower-carbon behavior and technology without, as CAPP cautions, jeopardizing the business. The concept of replacing profitable hydrocarbon energy and employment with higher cost renewable energy and jobs has been a red herring everywhere it has been tried. But perhaps there’s an angle to this that hasn’t been conceived or considered.
The current mantra that the oil industry of the future will be different is true, but most commentators are only talking about commodity prices. In Canada, with an NDP government in Alberta and possibly Ottawa, it’s clearly a lot more complicated.
By David Yager for Oilprice.com
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