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Political landscape shaken up New Alberta premier plans public scrutiny of oil sands royalties, wants to keep more bitumen refining in province; new federal Liberal leader has ‘green’ agenda, Kyoto Protocol at top of his list Gary Park For Petroleum News
In an age when political surprises are few and far between, Canada experienced two upheavals in the space of 24 hours that could have deep consequences for the oil and gas industry.
Stephane Dion was elected leader of the federal Liberal party Dec. 2, putting himself in line to become Canada’s next prime minister and implement his “green” agenda, with the Kyoto Protocol at the top of the list.
Ed Stelmach won leadership of the Alberta Conservative party in the early hours of Dec. 3, making him the next premier of the province, with a pledge to review the oil sands royalty regime and what his government can do to keep more value-added processing of bitumen in Alberta.
But, before either man has a chance to add specifics to policies, Canadians needed time to recover from the shock of seeing two candidates who sat in third place after early ballots vault over their more favored opponents to seize the leadership prizes.
Stelmach contrast to Klein Stelmach is as understated and low-key as his predecessor Ralph Klein was outspoken and colorful.
Although he was in Klein’s cabinet for the past decade, little is known about the man known as “Steady Eddie” because of his reluctance to grab the spotlight, hold news conferences or parade himself in public.
However, those who do know the 55-year-old farmer from northern Alberta are agreed on one thing: When he makes a promise he delivers.
Unlike Klein, who operated a seat-of-the-pants government, Stelmach has also promised a more disciplined government, which will be driven by plans covering his first 45 days, six months and one year in office.
The test will be what kinds of plan he presents for the oil sands and whether it can be made to work in a sector that is reeling from plans to invest C$120 billion over the next 10 years while Alberta’s ability to provide skilled workers and support services is at breaking point.
Klein candidly admitted in his final days in office that his government was caught off guard by the staggering pace of expansion and, in fact, had no policy for dealing with such unprecedented growth.
Oil sands royalties an issue In addition, Stelmach is under pressure from various political and special-interest groups to overhaul oil sands royalties to ensure the province receives a larger share of the wealth.
Stelmach himself concedes that Albertans do not believe that royalties, which were introduced when oil prices were C$12-$20 per barrel, reflect what they should be receiving.
He has promised a public commission to review the regime — already a sharp divergence with Klein, who opposed province-wide hearings, declaring he was content with internal government studies.
Stelmach said it is necessary to rethink royalties that currently fetch only 1 percent of gross revenues until the front-end costs of projects are paid off, when they move to 25 percent.
Stelmach wants value-added operations in province
In conjunction, he has pledged to do whatever is possible to keep more of the industry’s value-added operations in Alberta, including ethane as feedstock for the petrochemical industry and the upgrading and refining of bitumen.
He told a news conference Dec. 4 that that it is not possible to keep every barrel of bitumen in Alberta, but he wants to find ways to reduce the current outflow to upgraders and refineries in the U.S., where ConocoPhillips, BP and Marathon are working on expansions and modifications to their existing plants to handle more heavy crude from Alberta.
“We cannot allow long-term shipments of bitumen as Albertans lose out on higher value processing revenues and jobs,” he said during his campaign.
“We will look for ways to encourage the industry to process oil sands in Alberta, including the possibility of having producers pay more if the bitumen is shipped to the U.S.”
Stelmach also said his government will give priority to ensuring that basic infrastructure is in place to handle oil sands expansion, but dismissed any thought of applying a moratorium on future growth.
“There is no such thing as touching the brakes,” he said.
To tackle the labor shortage that has contributed to cost inflation in the oil sands, Stelmach said he will lobby the Canadian government to change regulations governing the foreign temporary worker program and to let Alberta set its own immigration policy.
On the environment front, he intends to foster technological innovation and development to reduce greenhouse gas emissions and protect surface and groundwater systems that are an essential component of oil and gas production.
Next federal election could be in spring With Dion in place as leader of the opposition Liberal party, the stage is set for the next federal election, widely expected in spring 2007, or sooner if Prime Minister Stephen Harper’s minority Conservative administration is toppled in a confidence vote.
Although Dion is not popular in his home province of Quebec — Canada’s second most populous province and a key battleground in an election — initial polls show him with a national lead of six percentage points over Harper.
Whenever the vote is called, Dion views the environment and sustainable development as two areas where the Harper government is vulnerable.
Within hours of his election, he pushed the environment to the front lines, declaring he wants to find a way to make Alberta’s economic power base the target for deep cuts in greenhouse gas emissions and the use of technology to develop a more sustainable energy future for Canada.
“We won’t kill the industry, we’ll make the industry sustainable,” he told a news conference.
“We have a very good plan for Alberta, precisely because there are so many things to do in Alberta.”
If a Liberal government could succeed in the oil sands region “perhaps sustainable development will succeed everywhere in the world as we will export our know-how and we’ll make megatons of money,” he said.
Dion proposing California-style emissions standards But Dion brings heavy baggage to the environmental task. During his time as Canada’s environment minister, greenhouse gas emissions rose 35 percent above Kyoto’s targets, which call for a 6 percent cut in 1990 emissions levels by 2012.
He is now promising an overall goal of lowering greenhouse gas emissions by 60 percent between 1990 and 2060 through California-style vehicle emissions standards and through tax incentives to encourage businesses to adopt environmentally friendly policies.
More immediately troubling for the industry may be Dion’s commitment to tackle the “advantageous tax treatment oil and gas companies receive” through an accelerated capital cost allowance for oil sands mines.
He said it is “no longer clear that special treatment is warranted given the boom in development, massive profits and the rising price of all types of fossil fuels.”
Greg Stringham, vice president of the Canadian Association of Petroleum Producers, told reporters that the industry found Dion, when he was a federal cabinet minister, brought a “very balanced view” to the greenhouse gas emissions issue, favoring action to “protect the environment, but also to have economic growth.”
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