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Why oilmen want a national energy strategy

The hard challenges to Canada's becoming an energy superpower.

Joe Oliver, left, Minister of Natural Resources, and Ron Liepert, Alberta Minister of Energy, co-chair the closing news conference of the energy ministers meeting in Kananaskis, Alta., Tuesday, July 19, 2011. (Photo: Jeff McIntosh/CP)

No sooner had provincial energy ministers wrapped up their conference in Kananaskis, Alta., in late July and released an action plan arising from the meeting than Ontario backtracked, saying it would not sign a document describing development of the oilsands as “responsible and sustainable.” Quebec’s minister quickly retorted that it wanted no part of a national energy strategy, the main subject of the meeting, because energy is a provincial jurisdiction.

That left Alberta energy minister Ron Liepert and industry groups such as the Energy Policy Institute of Canada (EPIC) putting on a brave face for a coast-to-coast agreement that might indeed make Canada, as Prime Minister Stephen Harper put it, an energy superpower. “Clearly our political leaders recognize how important the task of building a national energy strategy is and we are delighted they have agreed with many of our recommendations,” noted Doug Black, president of EPIC.

So why is Alberta and the oil and gas industry so keen on a national policy now? Until recently, the thought of federal intervention into energy caused oilmen, still haunted by memories of Pierre Trudeau’s National Energy Program, to break out in hives.

The answer is that 30 years of parochialism has caught up with Canada’s energy development. Take the case of oil. The industry could make another $25 billion a year at current prices, tens of millions more a day, if only the landlocked producers in Alberta and Saskatchewan could pipe it to tidewater. This is because the ocean-going crude oil price benchmark, Brent, is $15-20 higher than the continental price reflected in West Texas Intermediate. That spread is in part caused by the fact that the growing production from the oilsands and the border-spanning Bakken field gets funneled into the U.S. Midwest and on to Cushing, Okla., the delivery point for WTI.

It gets worse. You know those refineries shutting down in Quebec and the Atlantic provinces? That’s because they get their oil off tankers and pay the full Brent price. Somebody, either eastern consumers or refinery margins, has to get squeezed. More than that, how can we be an energy superpower when parts of Canada import oil at a high price while others export it at a lower price?

The natural gas market is even more distorted. The price available to producers here in shale-shocked North America is about a third what willing buyers of liquefied natural gas will pay in Asia.

The answer is to build more “midstream” pipeline and marine infrastructure to even out these market distortions, for example Enbridge Inc.’s Northern Gateway pipeline from the Edmonton area to Kitimat, B.C. What the oil producers want is a national strategy that encourages regulators to consider the national interest of such a project against local concerns.

On the face of it that’s a worthy goal, but as the energy ministers’ summit showed, it’s up against some hard realities of Canadian confederation. The B.C. government, which is otherwise pro-business and did not quibble with the action plan, has stayed out of the Gateway debate for one very obvious reason: the benefits to building Gateway, in terms of long-term job creation and government revenue, largely accrue to Alberta, where the resource is. Yet the risk of a spill on some of the world’s most prolific salmon rivers and pristine coastline, is almost entirely borne by B.C.

Unless Liepert, the industry and, indeed, Stephen Harper can find a way to dole out the risks and returns of energy development more evenly, parochialism will continue to rule. And that’s an even bigger challenge than becoming an energy superpower.