By adopting an energy policy founded on low royalties and pipeline development, the NDP government of Premier Rachel Notley squandered an opportunity to implement a program that could have strengthened Alberta’s economy while preparing it to deal with the inevitable decline in fossil fuel demand, author Andrew Nikiforuk told the final session of the annual Parkland Institute Conference Sunday.
In other words, oversupplying a global market that doesn’t need more oilsands bitumen will only lower prices, argued the author and journalist who has written about Alberta’s energy industry for three decades. “That’s Economics 101.”
Instead, the Notley Government has adopted an energy development policy little different from that of preceding Conservative governments or the United Conservative Party Opposition, Mr. Nikiforuk asserted, arguing that such an approach is more likely to intensify the province’s economic pain than ease it.
Shielding the industry from market forces through rock bottom royalties that effectively act as subsidies and using pipelines to create a supply glut of low-quality refinery feedstock is incompetent governance, whether it’s done by New Democrats or Conservatives, Mr. Nikiforuk said.
His message, delivered at the University of Alberta, is not likely to be welcomed by the political elites in Alberta, of course. They need not worry, despite Mr. Nikiforuk’s stature in Western Canadian energy journalism, there appeared to be no mainstream media journalists there to take note of what he had to say.
Ironically, Mr. Nikiforuk said, what the NDP should have done was adopt the program of the province’s first Conservative premier, who came to power in 1971. “Peter Lougheed was the only Canadian leader who came up with a program for dealing with resource wealth.”
Mr. Nikiforuk reminded his listeners of Premier Lougheed’s six famous principles of resource management:
- Act like an owner
- Collect your fair share
- Save for a rainy day
- Add value
- Go slowly
- Emphasize competence in government
“That is considered today a radical program!”
Instead, he said, Conservatives and New Democrats have both “failed to recognize the oil and gas price collapse signifies a structural shift. There is no plan for dealing with this shift, other than praying for another boom, or a pipeline.”
The oil price bust in 2014 “exposed how incompetent the Tories had become at fiscal management,” Mr. Nikiforuk recalled. That circumstance handed the NDP “a rare opportunity,” not only to form government, but to reform it. Alas, like the Conservatives, the NDP, too, “failed to notice that as oil production rises dramatically in this province, our revenue stream is becoming less and less.”
In truth, it’s certain they noticed. Finding the courage to sell a contrarian strategy like Mr. Nikiforuk’s in the current political atmosphere, though, would be another matter entirely.
Mr. Nikiforuk said rock bottom royalties – the policy of the Klein Government perpetuated ever since, most recently by the Notley Government’s 2015 royalty review – essentially subsidizes industry profits, especially those of corporations with their own refining capacity elsewhere. At the same time, it does little for the economy. He said the policy also leaves taxpayers holding the bag for the inevitable clean up – estimated by one credible analysis to be over $260 billion.
As for the claim more pipelines will result in a narrower price differential thanks to new markets in Asia for Alberta bitumen, Mr. Nikiforuk said, that is a pipe dream that defies the laws of economics.
Never mind, he said, that the single study saying this, done for Kinder Morgan Inc. as a sales pitch when it was the Trans Mountain Pipeline Expansion Project’s sole proponent – and now apparently taken as gospel by the provincial and federal governments alike – “is bogus.”
He asserted that the study been debunked by professional economists on its five key points: that no other pipelines will be built for 20 years; that oil prices will remain around $100 US; that the Canadian dollar would remain on par with its U.S. counterpart; that all heavy oil is subject to a discount in North America; and of course that increasing the supply will result in bitumen fetching higher prices in Asia.
“Pushing pipelines to export your product to Asia is not a good idea,” he stated. “Somehow the government of this province doesn’t understand the law of supply and demand.”
More recent research by agencies like the World Bank, Mr. Nikiforuk added, indicates “the best market for Alberta’s heavy oil is still in the U.S., the U.S. Gulf Coast.”
All that increasing supply will do is lower the price, Mr. Nikiforuk averred, noting that existing pipelines are not even running at full capacity due to the way space in the lines are allocated to producers, resulting in capacity being lost to “air barrels” as producers game the system to try to ensure they have the access their profitability demands.
Whether corporations with refining capacity in the United States want it or not, adding value in Alberta is the only way not to ship jobs and economic benefits down the pipeline, Mr. Nikiforuk told his audience, let alone keep Canada’s international carbon-emission pledges.
He continued: “Adding value. That’s where the money is. That’s where the jobs are. We’re not doing it. We’re shipping more and more raw bitumen.”
As for royalties, they remain far too low, especially considering the burgeoning liabilities that are being left by the industry, he concluded in response to a questioner. “If you’re not going to add value, then, goddammit, you’d better tax these companies that are making billions in profits!”
Mr. Nikiforuk’s passionate advocacy notwithstanding, Alberta seems likely to continue to ignore Mr. Lougheed’s principles in favour of letting volatility rule prices and carbon inputs rise as international demand falls. It won’t be pretty.
Mr. Nikiforuk is the winner of several National Magazine Awards for his journalism, the Governor General’s Award for Non-Fiction, the Rachel Carson Environment Book Award, and the Science in Society Journalism Award. The Calgary-based writer regularly covers the energy industry and the environment for The Tyee, an online newspaper published in Vancouver.