Support for Northern Gateway signals change in NDP stance
Firmness of common ground between Notley, energy industry still unclear
The NDP government of Rachel Notley made two moves on Thursday that won backing on the thorny — and divisive — issues of pipelines and royalties, but will detente between the two sides last?
The NDP government made two moves Thursday that won backing from the energy industry on the thorny — and divisive — issues of pipelines and royalties.
But will detente between the two sides last?
The day started with news the Notley government has moved off the NDP’s long-standing opposition to Enbridge’s Northern Gateway pipeline to the British Columbia coast.
Several ministers and the premier indicated they’re not against the development as Alberta seeks to win broad approval for pipelines needed to get oil and gas to export markets.
New pipelines would not only help diversify Alberta’s customer base away from the United States, but potentially unlock higher prices for producers and the provincial treasury.
“We’re in favour of all pipelines, to be honest,” Energy Minister Marg McCuaig-Boyd said in an interview, when asked about the province’s position on Gateway.
“We see the need for more than one pipeline, and what helps one will help another.” That wasn’t the case one year ago.
During the provincial election campaign, NDP Leader Rachel Notley professed her opposition to the controversial pipeline that would ship oil from the Edmonton area to Kitimat, B.C.
The $6.5-billion development faces staunch opposition from First Nations and environmentalists. While the development received approval from the National Energy Board, it faces 209 conditions from the federal regulator to proceed.
“Gateway isn’t the right decision. I think that there’s just too much environmental sensitivity there and I think there’s a genuine concern by the indigenous communities,” Notley told the Herald’s editorial board last April. “It’s not going to go ahead.” Fast forward a year. The premier told the Globe and Mail this week she’s no longer against the development. Economic Development Minister Deron Bilous indicated Thursday the province sees a potential way forward for the pipeline.
“We want to see pipelines going both east and west, quite frankly. It’s encouraging that conversation and dialogue is happening,” Bilous said.
It’s hard not to see this stance as a reversal for the NDP, one welcomed by pipeline supporters and derided by opponents.
Mark Scholz, president of the Canadian Association of Oilwell Drilling Contractors, said he’s pleased with the government’s new support for Gateway, given the importance of getting any pipeline built.
“It’s encouraging that she’s changed her stance on that, and I can’t figure out why she would hold that original stance in the first place,” he added.
Environmentalists weren’t as receptive. Greenpeace’s Mike Hudema accused the premier of a “flip-flop on her election platform.”
“The premier needs to start explaining how her push for new pipelines like Northern Gateway squares with her government’s commitments to climate leadership,” he said in a statement.
The premier’s office insists Notley’s past position simply reflected reality: the project faced so many obstacles it likely wouldn’t be built.
“At this point, we’re not opposed in principle to Northern Gateway. It’s still an incredibly steep hill to climb for that project,” said the premier’s spokesperson, Cheryl Oates.
“We hear that progress is being made and so now it’s up to the company to make its case.”
While the pipeline issue continues to boil, the province moved to extinguish any remaining embers of concern around its royalty review, releasing details of rates for new oil and gas wells.
Revamped rates are based on several factors, including average industry drilling costs. If producers “beat the average,” they will pay less.
Under the regime starting next year, new wells will pay a five per cent royalty until it reaches payout. Rates will then increase based upon commodity prices. Oil wells will pay royalties between 10 and 40 per cent, while gas wells will range between 5 and 36 per cent.
As production declines and the well moves into a mature phase, the rate drops. “This is the last big piece of the whole process,” said McCuaig-Boyd.
The minister and industry players agree the new royalty system should entice companies to innovate and drive down costs, while preserving existing rates of return at the outset.
Both the Canadian Association of Petroleum Producers and the Explorers and Producers Association of Canada welcomed the move, saying it will provide certainty for companies and investors. CAPP president Tim McMillan called the royalty discussion “robust,” while EPAC president Gary Leach said the industry is “content with the outcome.”
It’s clear the relationship between the sector and the Notley government is evolving after a rocky start.It began with trepidation and suspicion last year after the New Democrats launched a royalty review and hiked corporate taxes, while boosting the existing carbon levy on heavy emitters. Industry saw it as piling on. Leach said there are concerns about the incoming provincewide carbon tax, but he described the relationship between the government and oilpatch as “businesslike and cordial.”
“The government has come a long way, in terms of its understanding of the importance of the sector to the economic health of the province,” he said.
“Nothing will do that more than a big slump like we’re currently living through.”
Scholz agreed there are serious challenges ahead for both sides. But after 44 years of one-party rule in Alberta, both sides had to make a transition in their new relationship.
“It had to improve. I think there was this perception of a very fragile relationship between the government and the oil and gas industry. Quite frankly, I think both parties need one another in order to get things done,” he said.
“We’ve certainly come a long way since the election in May.”