The Truth About Canada (41 page)

While the Alberta government has moved at the pace of a turgid snail,
The Economist
tells us that “all around the world, from Algeria to China, governments are changing the terms of investment in oil and gas on the grounds that they are not receiving their fair share of profits.”
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Remarkably, Suncor Energy was projecting that its oil sands royalties could fall to as low as 6 percent in the years 2009 to 2012. In 2006, Suncor recorded a profit of $3-billion. Despite huge increases in oil sands
production, Alberta Department of Energy predictions were that oil sands royalty revenues will be the same in 2020 as they were back in 2004/2005.
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It truly boggles the mind.

A bit more about the incredibly stupid energy provisions in Article 605 of NAFTA. Since the agreement came into effect, oil and natural gas exports have increased dramatically. Can we cut these back if we deem it to be in our own national interest to do so? Sure we can. But only if at the same time we cut back our own consumption. NAFTA says that Canada must continue exporting the same proportion of its oil and gas production to the United States as it did in the previous three years. (The proportionality clause refers also to petrochemical goods and hydro power.)

Gordon Laxer discussed energy and NAFTA in a
Globe and Mail
piece:

Our NAFTA partners are looking after their own energy security. Canada is the only NAFTA country prevented from doing so.

Four years ago, the United States adopted a national energy policy that emphasizes energy security, self-sufficiency, and even financial support for domestically owned firms. The terms are reminiscent of Canada’s national energy program in Pierre Trudeau’s time.

When NAFTA was being negotiated in 1993, oil and gas corporations based in Canada, many of them foreign-owned, lobbied for a proportionality clause to be included in the agreement.
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How did the Mexicans, our other NAFTA partner, react to the petroleum industry proportionality proposal strongly backed by the U.S. government? They scoffed at the idea, and quickly and firmly rejected it. So we ended up with a national energy policy for the United States and a ridiculous, locked-in, straitjacketing, useless no-energy-policy for Canada.

Then there’s the question of price.

Want to ship oil or natural gas to a purchaser who’ll pay a much higher price than the United States? To China, for example? Forget it. We can’t cut back the proportion of production that we sell to the United States. And NAFTA says we can’t charge Americans a penny more than we charge Canadians.

Has
anyone
in Canada stopped to think for even a moment what would happen if there was a major crisis in the Middle East and oil supplies to the United States were cut off? We know for sure that prices in the United States would go up sharply. And because of NAFTA, Canadian prices would do the same.

So, all this considered, what should we do? You already know the answer if you’ve read the chapter on NAFTA. I believe we should abrogate NAFTA and impose export taxes on all oil and gas exports. We should use the resulting tax revenue to fund R&D and the production of renewable energy. The Americans, and the oil companies, and the Alberta government will scream blue murder. But did the Americans stop importing oil when it spiralled to over $98 a barrel and their deficit with OPEC jumped from $10-billion in 1988 to $80-billion in 2005? Are the oil companies suffering? Is the Alberta government short of money?

As for other things that need to be done, here are some suggestions from the excellent Pembina Institute and from other experts:

• We should give government subsidies to promote energy efficiency, renewables, and conservation instead of subsidies to oil companies.

• We should plan a much more moderate pace of development of all forms of petroleum production.

• We should ensure that environmental destruction by the petroleum industry is properly penalized, and that the revenue is used to improve the environment and for R&D on renewables.

• We should take steps to improve and expand public transportation vastly, and promote and legislate much more mandatory car pooling.

• We should impose lower taxes on smaller, more fuel-efficient, less polluting cars, and bigger taxes on the rest, with rebates for low-income individuals and families.

• We should legislate much tougher auto efficiency standards and vastly increase rail transport.

• We should study Brazil’s great success with ethanol and decide how we can best develop our own cellulosic fuel-efficient ethanol.

• We should increase taxes on petroleum company profits.

• We should stop exporting raw bitumen and instead process it into upgraded products here in Canada, making sure that the carbon produced is properly captured. Even former Alberta Premier Peter Lougheed says that it’s unacceptable that we should be shipping jobs down the pipeline.

• We should dedicate ourselves to becoming a world leader in the production of improved new wind turbines and solar panels.

In 2004, Germany was producing 40 percent of all wind power, Spain 20 percent, the United States 16 percent, Denmark 7 percent, Italy and the Netherlands 3 percent each, Japan and the United Kingdom 2 percent each, and all others combined 7 percent. Today, Canada stands in 13th place in the production of wind power. By 2005, Denmark was getting 20 percent of its electricity from wind and Germany over 7 percent. In Canada, in 2005, wind, solar, and tidal power combined made up only 0.5 percent of electricity generation. Yet a 2005 poll said over 90 percent of Canadians are in favour of more investment in solar, wind, and hydro development, while 76 percent were opposed to more coal production and 64 percent were against increased nuclear capacity.
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But that’s exactly what Stephen Harper and Ontario Premier Dalton McGuinty are planning.

The good news is that in 2006, wind farm construction in Canada doubled from 2005, producing enough energy to power some 370,000 homes. Some recent estimates suggest that by 2009 we could be among
the top five wind-power producers in the world, with close to $18-billion in investments planned between 2007 and 2015. Other estimates suggest that up to 5.5 percent of Canada’s energy will come from wind power by 2015.
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Unfortunately, because of our failure to do our own R&D, we have to buy almost all our wind-power turbines from American or Danish firms.

When you read the following quote, consider if you have heard anything remotely similar from our prime minister, the premier of Alberta, or any of their cabinet ministers. Here, from October 2006, are the words of Norwegian Secretary of State Geir Axelsen, who was speaking about Norway’s oil:

When we have this natural resource, it’s a moral question: Is it right for our generation to just spend this wealth in our time? It’s taken 100 million years to create these resources, and it’s possible that they will be used up in the next 50. Isn’t it reasonable that the next generation also has the option to choose how to spend the money?

The Norwegian petroleum company Statoil ASA, 70 percent owned by Norway, plans a multi-billion-dollar, 200,000-barrel-a-day oil sands project in Alberta, but says that new environmental costs will not be a problem; the company, which operates in 35 countries, is already a leader in carbon capture and storage.

This said, the previously discussed natural gas and water shortages are clearly going to be a very difficult problems, perhaps impossible to solve. Increasingly, it’s looking like the long-debated and long-planned natural gas pipeline from the Arctic may never be built, as new plans for liquefied natural gas (LNG) plants and terminals proceed. The opening of year-round shipping through the Bering Strait and via the Northwest Passage will allow LNG to be delivered from around the world more cheaply and to much wider markets.

Just how dumb have we been? There are now nine multi-million-dollar projects in the works to import LNG into Canada from as far away
as Malaysia, Indonesia, and Russia. Some of the projects will present very serious environmental and safety concerns.

But considering all of this, and the huge recent petroleum industry profits, surely petroleum firms in Canada are planning to increase their spending on oil and gas exploration and development? Guess what? Estimates show 59 percent of companies surveyed worldwide planned spending increases. But in Canada, 57 percent planned to decrease spending.
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If you think we’ve been incredibly stupid with NAFTA and our oil and natural gas, wait until you read the chapter on water, which follows. But you’d better be prepared to have some blood pressure pills handy.

The September 2007 report by a citizens’ panel suggesting that petroleum industry royalties in Alberta be increased produced an entirely predictable, heated, and sometimes hysterical industry reaction. Bill Hunter, chairman of the panel issuing the unprecedented report, which urged higher royalties particularly for oil sands production, said, “Albertans do not receive their fair share from energy development and they have not been receiving their fair share for some time.”
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The report suggested that there was lots of room for higher royalties, that they wouldn’t drive the oil companies out, and that the province of Alberta was missing out on billions of dollars in revenue it should have been getting.

EnCana, the company with the largest corporate profit in Canadian history in 2006, threatened that it would cut $1-billion from its scheduled 2008 spending plans if asked to pay higher royalties. Canadian Natural Resources, ConocoPhillips, Nexen, Talisman, and Imperial Oil, among others, also warned against royalty increases. One broker, in an e-mail to his clients, absurdly called Calgary “Caracas on the Bow River.” Meanwhile, the Canadian Association of Petroleum Producers complained that the 104-page royalties report,
Our Fair Share
, ignored the real costs facing the industry, while several analysts were using the title “Albertastan.” At the same time, some estimates placed the loss to Albertans because of inadequate royalties in recent years at almost $9-billion.

As the debate continued, it was revealed that the Alberta Energy Department had told the Ralph Klein government in no uncertain terms three years earlier that oil and natural gas royalties could rise significantly without hurting the industry. In a highly critical follow-up report, the Alberta auditor-general said he didn’t know why the government chose not to act.

Does anyone think it might possibly have anything to do with the generous petroleum industry election funding going to the Klein government?

For some perspective on this, it’s interesting to note that, according to Wood Mackenzie, the Alberta government’s net revenues from the oil sands were the 11th lowest as a percentage of industry revenue among a list of 100 governments around the world, and if the province raised royalties as the new report suggested, Alberta would rise on the list, but only to number 44.
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The response to the possibility of rising royalties has been so harsh, bordering in some cases on the hysterical, that for the first time in my memory (and I’ve lived in Alberta for over 70 years) many people in the province are turning against the industry. The excellent
Financial Post
Calgary petroleum correspondent, Claudia Cattaneo, writes that the

reservoir of goodwill seems to have vanished. A surprising number of Albertans seem to be cheering for the six-member panel calling for a punitive increase in taxes and royalties from Big Oil. Warnings from Big Oil are scoffed at as “posturing.” Many, including the panel itself, believe oil companies have no choice but to pay up because they have nowhere else to go since the rest of the world has gotten even meaner.
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Eric Reguly points out that “economic nationalism is on the rise. Poor countries that once begged foreign oil companies to develop resources buried in deserts and jungles are now kicking these same companies out. Development revenue and tax laws are being furiously rewritten to favour domestic interests.”
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Widely respected Calgary journalist Andrew Nikiforuk lauded the royalties report for its “blunt conclusions” and its honesty, calling Alberta’s resource record “a third-rate sham.”

When the Alberta government responded to the panel’s call for a 26 percent increase in the province’s royalties, the response was a remarkable watering down of the proposed increase. The changes were far more timid than most had hoped for, leaving Alberta still far down the list of petroleum producing countries in revenue going to government coffers. Pedro van Meurs, a respected international consultant on royalties, called the new royalty rates “a disaster for Alberta [which] will not give Albertans a fair share of the oil sands revenue.”
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Despite the ludicrous and wildly distorted threats from the industry (“many international investors will say forget Canada and forget Alberta”), all this has happened as oil prices rose sharply and federal corporate taxes were being chopped. UBS Securities Canada said that the net value per barrel of oil sands in the ground was now greater than the value before the modest royalty increases were announced, and projections were that even with the increases and substantially increased production, royalty revenue will fall by over $10-billion over the next 10 years and Alberta (the “energy superpower”) will continue to get more revenue from gambling than from oil sands royalties.
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