A new, worse NEP
For the first time in many years, the federal government is stoking Western alienation as it proves unable to find its way in promoting resource development and access to export markets for Canadian energy, while trying to balance environmental considerations. The prime minister calls the dispute between Alberta and British Columbia — over B.C.’s attempt to ban shipments carrying Alberta’s oil from the Trans Mountain pipeline expansion claiming a fear of oil spills — a “disagreement between provinces.”
That i gnores t he constitutional role the federal government has in interprovincial transportation and trade. Alberta’s Premier Rachel Notley is right: this is as much a fight between B.C. and the federal government as it is between Alberta and B.C.
In fairness, the federal Liberals have said they still support the Trans Mountain pipeline expansion and vow to see it built. It’s a promise that won’t help the Liberals garner many votes in Vancouver, but perhaps the Trudeau government is quietly hoping the pipeline’s owner, Kinder Morgan, gives up in frustration, for “business reasons,” as other resource project proponents have done recently after enduring endless regulatory and political setbacks.
A constitutional conflict looms. The federal government may oversee interprovincial transport and trade, but it shares oversight powers with the provinces when on the environment. So B.C. can at least say it has a right to regulate against oil spills. What sticks in Alberta’s craw — and should for the federal government, too — is that federal regulators have already vouched for the safety of Trans Mountain’s shipments. Everywhere on the planet, oil leaves harbours with an almost perfect safety record and Kinder Morgan’s processes are to be worldclass. Trans Mountain has been shipping oil through Vancouver for decades.
The problem for the Trudeau government is its incon- sistency. It banned tankers off the more remote B.C. northern coast and refused to allow pipelines in the Great Bear Forest for reasons that were entirely political, not scientific. Vancouver residents opposed to Trans Mountain naturally wonder why they can’t have that, too.
The Liberals also oversaw the demise of the Energy East plan, which would have brought Alberta oil to Quebec and the Atlantic, replacing imported oil as well as provide new opportunities to diversify markets with tidewater access. The economics might have been dicey, but if the federal government really wanted to the project to succeed it could have helped by providing regulatory certainty and fiscal assistance, just as it does for Quebec’s aerospace and Ontario auto plants. Instead, it backed away in the face of noisy protests from Quebec.
Meanwhile, as Canadian politicians dithered over liquefied natural gas projects that would have seen overseas markets opened to gas from Alberta and B.C., the U.S. and Australia got busy construct- ing multiple plants of their own. After both federal and provincial regulatory delays and B.C.’s decision to devise new rent taxes specifically for LNG, Malaysia’s Petronas eventually cancelled the only project that could have conceivably made it over the line with the right push. People tried blaming it on “business reasons,” as the price of gas had slipped. But now, Asian LNG prices are recovering, close to $14 per Mcf, making LNG profitable on a longterm basis to replace thermal coal or nuclear power.
The parts of Western Canada that rely on energy — Alberta, Saskatchewan and B.C.’s interior — are beginning to relive the consequences of Pierre Trudeau’s disastrous National Energy Program of 1980- 85. The NEP, which hit the West just as commodity prices were falling, led to one of the largest income transfers in history, from the West to Central and Eastern Canada. Western energy producers were forced to pay an export tax to fund subsidies to make life cheaper for energyguzzling consumers to the east. This time, the income isn’t being transferred from the West to Eastern Canada. It’s being transferred from Canada to the United States.
With access to tidewater frustrated, the U. S. remains Canada’s sole export market for oil and gas. Tight pipeline capacity and increased reliance on more costly (and potentially more dangerous) rail transportation has forced Western producers to suffer deep discounts. The spread between Canadian and U. S. oil prices rises with the tightness of the constraints and it now sits at US$25 instead of a more normal US$10 per barrel. If the spread continues for a whole year, the cost to the Canadian economy will be roughly $ 23 billion. (Already the average discount had cost Canada roughly $15 billion from 2015–17.)
And based on current Asian LNG prices, Canada could have sold natural gas at least twice the price it currently fetches in the U. S. There’s up to roughly $6 billion annually in value-added in the long term if we had LNG capacity for export.
So today, thanks to government policy and indecision, American consumers enjoying subsidies paid for by Western Canadians. It was bad enough when it was Western Canada subsidizing the rest of the country. It’s ludicrous that Westerners are being forced to subsidize economically booming Trump- land. And it’s not even the Americans’ fault: It’s Canada’s.
No other major western oil- exporting country — not Norway, not the U. K., not Australia — shackles its resource industry with deathkilling regulations and taxes as they adopt tougher carbon policies. They all manage to find a proper balance between environmental and resource development objectives without destroying the energy-rich regions that fuel their economic engines.
The federal Liberals need to find that balance, fast. Otherwise, Trudeau will find himself accused of creating an NEP 2.0, with all the terrible regional tensions that brings.
They’re already starting.