How Canada failing to become an energy superpower doomed Alberta to a carbon tax

Canada did not become an energy superpower. Instead, it is what it has always been: a dependent supplier to the American behemoth

Last Sunday, four Big Oil CEOs in expensive suits stood behind Alberta Premier Rachel Notley and cheered wildly as she clubbed their industry upside the head with a huge climate change two-by-four. Why did they do that, do you think?

Alberta NDP Premier Rachel Notley.

Were they that stoked about a hard emissions cap of 100 megatonnes on the oil sands, a province-wide carbon tax, and mandated requirements to reduce fugitive methane emissions from their oil and gas operations?

And why was Big Oil’s lobby group, the Canadian Association of Petroleum Producers, singing Notley’s praises in a press release and pledging to “take carbon out of the barrel”?

The short answer? Because Canada and Alberta lost.

Remember way back in 2006, before climate change became a thing, when then Prime Minister Stephen Harper boasted how Canada would become an “energy superpower”?

Yeah, that didn’t happen. In fact, it didn’t happen in spectacular fashion.

Saudi Arabia is an energy superpower, with its low production costs and 10 million b/d of production. OPEC is still extracting oil at full throttle, trying vainly to kill the American shale revolution, because the Saudis are cracking the whip.

Murray Edwards, CEO of Canadian National Resources Ltd.

The United States is also an energy superpower, producing roughly nine million b/d and aggressively responding to OPEC’s challenge by driving down costs, innovating, and using better technology. In just a few short years America has become the world’s biggest producer of oil and gas.

Canada? The opposite of an energy superpower. (we need a phrase for that. Energy wimp?)

The plan was to build pipelines to the West Coast and access Asian markets for Brent prices, instead of the heavily discounted Western Canada Select rates Alberta sands producers suffered by selling into the crowded American Midwest. And to build Keystone XL to take heavy diluted bitumen to thirsty Texas Gulf State refineries, where Canada had only a very small piece of the action but the potential to wrest market share from Venezuela, Mexico, and Nigeria.

Canada’s newfound market access would give industry the chance to flex its muscles and expand production to 6.5 or 7 million b/d by 2035, almost rivaling the Americans. Oil producers would make more money, which means governments (primarily Alberta and Canada) would generate a lot more tax revenue. Nary a whisper about climate change.

Lorraine Mitchelmore, Shell Canada President. Photo by Chris Bolin / for Shell Canada.

Win-win, right?

Ah, no. The energy superpower strategy was a bust.

American environmental charities pumped money into a revitalized British Columbia environmental movement allied with powerful First Nations opposed to pipelines crossing their traditional territories.

The first casualty was Enbridge’s 525,000 b/d Northern Gateway project. Opposition was so fierce that despite National Energy Board approval last year, Northern Gateway was generally considered a dead pipeline walking. Newly elected Liberal Prime Minister Justin Trudeau’s imposition of an oil tanker ban two weeks ago for northern BC waters put the project out of its misery.

The second West Coast pipeline, Kinder Morgan’s Trans Mountain 525,000 b/d expansion, is likely to meet the same fate as Northern Gateway for most of the same reasons. Except in this case, environmentalists and First Nations are led by Burnaby’s portly but powerful mayor Derek Corrigan, a lawyer who loves to spend public money on lawyers to fight oil companies.

Brian Ferguson, CEO of Cenovus.

Then there was the 830,000 b/d Keystone XL, which eco-activists on both sides of the border turned into a proxy war over climate change and a symbol of the battle to destroy the social license of fossil fuels. President Obama rejected TransCanada’s application, calling Canadian oil “dirty” and making it clear Canada was on borrowed time.

The only pipeline project not under water is the 1.1 million b/d Energy East project from Alberta to New Brunswick. But only because it’s still early days – though eco-activists have been organizing in Eastern Canada since the first announcement by TransCanada, so expect it to have a very bumpy ride even if approved.

There you have it. Canada and Alberta’s energy superpower dreams beaten to a pulp by climate activists.

All Alberta oil producers can count on going forward is their existing pipeline capacity and very expensive – and dangerous – crude-by-rail trains to American markets.

Canada and Alberta are what they have always been: Price takers. Powerless. Dependent. A captive industry.

Steve Williams, CEO of Suncor.

Hang around a Tim Hortons coffee shop sipping your double double long enough and you’ll hear someone argue, disgust in their voice, that this was always the goal of the Americans: cut off the oil sands from new markets and enjoy rock bottom prices at Canada’s expense. Not to mention high profits for crafty old Warren Buffett, who owns the railways transporting Canada’s oil south and who everyone knows is a big donor to Obama (never mind that Buffett public called for Keystone XL to be approved).

Planned or not, conspiracy or happenstance, the old hosers are right. Alberta is screwed, forced to export ever more crude oil to the United States for whatever pittance the crafty Yanks will pay.

And Alberta will take it because things could get much worse.

Does anyone doubt that, flush from their Keystone XL victory, climate activists will at some point argue that if Alberta oil is too “dirty” for a new pipeline, it’s too “dirty” for existing pipelines? Or that Obama/Hillary might agree?

Once mighty Canadian energy ambitions are swiftly coming unravelled, thread by infuriating thread.

Which brings us back to the four Big Oil CEOs (Suncor, Shell, Cenovus, CNRL) smiling and back slapping as Premier Notley introduced the most ambitious package of climate change policies ever unleashed on the oil and gas industry.

You can smell the stink of desperation on them. Industry has hundreds of billions of dollars in shiny new oil sands assets that could be stranded in the barren northern wilderness if someone doesn’t do something quick.

They ground their teeth as a smiling Obama chatted up the dashing Trudeau at the APEC Summit in Manila, welcoming Canada back into the league of civilized nations after the new PM promised his country would do everything possible to meet its emission reduction pledges.

The CEOs know they have one chance left at the brass ring: Join Team Obama. And Team Hillary, if the Democrats win again, as seems likely with Donald Trump leading the GOP primary polling.

So, that’s what Notley was really doing last Sunday, frantically semaphoring to Washington that Team Alberta is onboard with Team Obama and can be counted upon to support the American agenda at COP 21 in Paris next week.

In the process Notley probably saved the Alberta oil sands.

In fact, her strategy was brilliant if you think about it: boldly advancing the NDP climate change strategy AND ensuring the Alberta economic engine – and driver of provincial government revenue, let’s not forget that tidbit – survives to fight again when global oil prices recover in 2017 or thereabouts.

If you’re skeptical, let me leave you with this sentence from the Nov. 22 CAPP release:

Alberta’s Climate Leadership Plan provides direction that will allow the oil and natural gas industry to grow, further enhance its environmental performance through technological innovation, and is expected to improve market access to allow Canadian oil to reach more markets…

There you have it, “climate leadership” in exchange for improved “market access.”

To sum up: the climate activists won, the energy superpower boosters lost, and the price average Albertans will pay for being lumped in with the losing team is a carbon tax.

They should be lucky they got off so lightly.

Four Big Oil CEOs are wishing they had.

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  1. Seriously? Give your head a shake, Markham. Blame it all on the environment activists. Even though he talks about them in the opening of the article, apparently the decisions have nothing to do with the a) glut on the world market because OPEC/Saudi Arabia are punishing the US for its military aggression in the area, or b) the US not wanting Keystone for political reasons (and using the environmental activists as their excuse), or c) the relative expense of extraction from the tarsands and the depressed price of the bitumen compared to US crude prices, or d) the many pipeline leaks and management failures on the part of the companies that have led to them being seen as untrustworthy, or e) that rule of law regarding treaty rights and unceded lands needs to take precedence over corporate rights, or f) that we are seeing more extreme climate-change-related events, or g) that in 44 years of rule the PCs were only too happy to give industry what it wanted but weren’t smart enough or prescient enough to work on the question of access to markets until the price of oil skyrocketed.

    No, it’s all about the activists despite those things. Because we know who really has power. Oh, yes. Those environmental activists – the ones who have been completely unable to affect anything until now. The ones who were unable to get Canada to stick with Kyoto (or any other) targets. The ones who have been completely unable to influence energy regulation talks. The ones whose main breakthrough seems to have been the Al Gore touring powerpoint that got zero traction.

    And the funding. No mention that the Koch brothers, who had bought up a number of oilsands licences, were also funding lobbying groups and think tanks in Canada. US corporate influence to counter the US environmental lobby. And who do you think has more money to fight that battle?

    The industry itself screwed this up. I do agree with the sentiment near the end that Notley’s actions will allow it to fight another day.

    The Harper dream was a fantasy built by a government and an industry that ignored anyone who tried to point out the flaws in their construction, labelling them as lunatics and radicals. This article seems to be more of the same.

  2. Your critique of this deal is fundamentally correct.
    What was recieved as a quid pro quo for acquiescing for a carbon tax was deficient.
    I say this as one who was an senior executive at TransCanada over the past fifteen years, with major commercial development responsibility for the Keystone XL pipeline.
    Carbon pricing was the only viable carbon policy for Alberta.
    But Alberta should have had demands of the rest of the country and the environmental movement if it was to have made this concession.
    Your conclusion that some element of improved market access comes out of this deal remains to be seen.
    What should have occurred was an explicit quid pro quo that before a fulsome carbon tax is implemented in Alberta it must achieve the actual construction of some new pipeline infrastructure for both oil sands and LNG potential.
    I could go further to comment the whole notion of a cap on emissions while having a “credible” carbon price in place was illogical.
    Why the CEOs acquiesced to it is difficult to entirely understand. Doubtless they believed that the cap would not be binding in the short run and it were to be in the future some future government would reconsider.
    This mentality is dubious.
    Hope to hear from you.

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