NDP, OILPATCH ON THE ROAD TO DÉTENTE?
The government has presented a pair of olive branches, Chris Varcoe writes.
CALGARY The NDP government made two moves Thursday that won backing from the energy industry on the thorny issues of pipelines and royalties.
But will détente between the two sides last?
The day started with news the government has moved off the NDP’s long-standing opposition to Enbridge’s Northern Gateway pipeline to the B.C. 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 help diversify Alberta’s customer base away from the U.S. and 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. “We see the need for more than one pipeline, and what helps one will help another.” That wasn’t the case a 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 said 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.
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 Notley of a “flipflop on her election platform.”
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.
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.
McCuaig-Boyd 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.
Leach said there are still concerns about the incoming carbon tax, but he described the relationship between the government and oilpatch as “business-like 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.