300 billion reasons why the Alberta Energy Regulator should be an election issue

What if Alberta is stuck paying $300 billion of oil and gas environmental liabilities? Shouldn’t that be an election issue?

The Alberta Energy Regulator is broken. The province’s chief protector of the public interest is the bosom buddy of the oil and gas industry – hopelessly captured and arguably corrupt. Evidence gathered from dozens of interviews leaves no doubt on that count. Worse yet, the AER, just like its predecessors stretching back to the 1950s, was designed from the beginning to put industry’s interest before the public interest. If we’re being honest, Alberta likes it this way and always has because of the incredible wealth extracted from its hydrocarbon bounty. But the global energy transition has reached an inflection point and the Alberta status quo may not be viable much longer. What then?

The bill for environmental liabilities kicked down the road for decades – orphan, abandoned, and inactive wells, massive oil sands tailings ponds, pipelines and infrastructure –  is nearing $300 billion. The bargain between producers and governments has always been that those liabilities would be paid for with future income. But the energy transition is about to expose that deal as a loser for Alberta taxpayers. The International Energy Agency forecasts peak oil demand in 2030, just seven years away. What happens when more oil is produced than markets buy? Will prices collapse as they did in late 2014? Are Alberta producers competitive at much lower prices? 

For the first time, Alberta hydrocarbons face an existential crisis. Maybe Canadian Big Oil is prudent and survives past 2050, as its economic modelling suggests. But maybe it doesn’t. There are plenty of trends – the rapid electrification of transportation being the most important – that suggest it won’t.

What then, indeed.

If small and medium-sized oil and gas companies can fail and walk away from their wells and tanks and pipelines, who is to say that big companies won’t, too. If even a few of the Canadian majors like CNRL, Suncor, Cenovus, or Imperial Oil go bust, who pays to remediate 37 tailings ponds full of 1.5 trillion litres of toxic water? The financial implications for Alberta, for Canada, are staggering. For those who say such a scenario is preposterous, the current abandoned, inactive, and orphan well crisis coupled with unpaid rural municipality taxes is a cautionary tale.

“This is my personal nightmare,” says environmental law professor Martin Olszynski, “is that the industry has become singularly focused on the climate imperative (decarbonization), has essentially abandoned any serious thought about addressing liabilities, and has convinced the regulator to do the same. They will demand public money and subsidies to decarbonize, which might work for a little while, but when demand falls (because ultimately we’re electrifying everything), they’ll shrug their shoulders and walk away from all of it, just like so many of the coal companies have now done in the US.”

In the short-term, the industry is already asking the Alberta and Canadian governments to pay an ever larger share of those liabilities. Ottawa already contributed $1 billion to clean up Alberta wells and create oil patch jobs early in the COVID-19 pandemic. Critics say the funding replaced money companies would have spent anyway, pouring money into already bulging corporate coffers and doing little to reduce liabilities. 

Before Danielle Smith became premier in August, she was a lobbyist for the Alberta Enterprise Group, pushing for the Alberta government to spend $20 billion cleaning up old wells that should be industry’s responsibility. The proposal was rejected by then Energy Minister Sonya Savage, herself a long-time lobbyist for the pipeline industry. As premier, Smith again put RStar on the table. Political science professor Duane Bratt described the move as “blatant corruption.” A public outcry forced Smith to repackage RStar as a $100 million “pilot project” called the Liability Management Incentive Program. The Premier left little doubt that if the pilot was successful, whatever that means, RStar is back in business.

Here’s the bottom line.

Successive Alberta governments have allowed the oil and gas industry to defer hundreds of billions in environmental liabilities by gifting it a pliant and captured regulator. The bill is now due. Widespread company failure in the oil and gas junior sector kicked off the current crisis. Without major AER reform, there is a good chance that crisis will deepen throughout this decade. Once oil consumption begins to decline some time after 2030, the odds are very good that the crisis will spread to more and more producers, eventually affecting the majors.

At that point, it’s game over for Alberta. The Province will be faced with bankruptcy to clean up oil and gas liabilities or face the prospect of leaving them un-reclaimed, which would be an environmental disaster.

Sure, that’s a worst case scenario. But shouldn’t Alberta plan for the worst case instead of hoping for the best?

This is why the AER should be an election issue. 


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