Alberta needs B.C. to get its oil to Asia, but does B.C. need Alberta?

B.C. and Alberta | BCBusiness

Alberta needs B.C. to get its oil to Asian markets, but B.C. doesn’t really need Alberta for much of anything. Or does it? Evaluating the politics of pipelines, and the often fraught relationship between Western Canada’s powerhouse provinces

Early in her tenure as British Columbia’s 35th premier, Christy Clark set in motion a plan to grow her province’s national clout by unlocking the West’s energy resources. Along with her counterparts in Alberta and Saskatchewan, Clark unveiled plans to establish B.C. as an “energy powerhouse”—the gateway for Canadian products to reach lucrative Asian markets.

“The Western provinces have a real chance to step up in Confederation,” Clark explained to The Globe and Mail in December 2011 as she prepared for the joint lobbying mission to Ottawa. She wanted to help shape a future where the West would use its wealth of natural resources—not just B.C.’s gas and coal but Alberta’s oil—for the benefit of a stronger Canada: “We recognize the big contribution that the oil sands make to Canada and to our national economy.” Port access to B.C. tidal waters would hold the key—the gateway to Asian markets, especially land-locked oil that’s captive to capricious U.S. markets.

But those nation-building ambitions faded as Clark prepared for a tough election campaign in the spring of 2013. The governing BC Liberals appeared to be headed for defeat, and their leader needed a big idea to capture voters’ attention. The idea she seized on was a made-in-B.C. industry based upon liquefied natural gas. But it would conflict with the movement of Alberta’s oil to the coast. With growing opposition to oil pipeline expansion in her province, Clark needed to keep oil and gas apart. She would create barriers to new oil pipelines while promoting natural gas as the clean and safe alternative.

In the final week of the election campaign, the Liberal leader was in full rhetorical flight. “The pipelines that are of most interest to British Columbians are liquefied natural gas,” Clark told the Globe’s editorial board in early May 2013. “That’s something we can do and we don’t need the federal government and we don’t need Alberta.”

While Clark’s remarks would further irritate intergovernmental relations with Ottawa and Alberta, they did not surprise. Days before she publicly unveiled her “five conditions” in the summer of 2012, Clark phoned Prime Minister Stephen Harper to warn him of her plans, threatening to block either the Enbridge Northern Gateway project or Kinder Morgan’s proposed Trans Mountain expansion if her demands were not met.

Those five conditions set increasingly high hurdles for approval of any new heavy oil pipeline project. The first, approval by federal regulatory agencies, was the easiest. “World-leading” marine and on-land oil spill protection standards are subjective, though new regulations from Ottawa in April go a long way toward satisfying that demand. The fourth condition—aboriginal engagement, participation and accommodation—could be near impossible. And until that is met, B.C. won’t even discuss the fifth condition: a “fair share” of the fiscal benefits to British Columbia.

By drawing a line in the sand, Clark infuriated the Harper government, which has been an enthusiastic booster for the Enbridge proposal. But her carefully crafted position in the 2013 election, in which she campaigned for resource development in general but talked tough on oil pipelines, landed her a new mandate from voters in a province that is so often torn over the competing desires for economic development and environmental protection.

That election is behind her, and the next one is still a safe distance away. But having won re-election with a promise of a debt-free B.C. based on hoped-for LNG riches, the premier still does not want to risk a resource development backlash that could thwart her ambitions.

That presents a tall order for Alberta, for Ottawa and for industry: can they walk Clark back to the point where she wants to unlock the big contribution that the oil sands make to Canada?

The financial stakes of getting Alberta oil to new markets are high, but the returns vary depending on where you live.

The Canadian Energy Research Institute, in a July 2012 report, estimated that by the year 2035, completion of both the proposed Enbridge Northern Gateway pipeline and Kinder Morgan’s Trans Mountain expansion project would generate roughly $680 billion in economic growth for Canada. But by province, the incremental tax benefits look very different, according to the CERI study. While Alberta would reap $133 billion, British Columbia could expect to collect just $2 billion.

62% of Albertans “trust the new Alberta government to properly handle negotiations with B.C. on Northern Gateway.”

Another report, this one by the Calgary-based research firm Wright Mansell in March 2010, looked only at the Northern Gateway project and arrived at a rosier picture: British Columbia could expect to collect $6.7 billion, or 8.2 per cent of the total $81 billion in incremental taxation revenue. While that take is significant, Clark maintains it isn’t really a fair share, especially considering that B.C. would carry 100 per cent of the marine risk and a significant proportion of the land-based risk.

On the surface, Northern Gateway appears to be dead in the water, with B.C.’s premier showing no interest in the fate of the project. Clark has promised voters in B.C. that her government will pay off the provincial debt with LNG riches—and First Nations support for LNG development is critical. That support could collapse if the B.C. government is seen to support oil pipelines. “You do one at the cost of the other,” says one Clark government insider.

And yet, there is a potential storyline where the B.C. government could, in the final chapter, come around to support the expansion of Alberta bitumen products crossing the Rockies to the coast.

B.C.’s five conditions for the approval of new heavy oil projects add up to a relatively short manifesto—one that was quickly dismissed by critics as a desperate shopping list from a premier who wasn’t expected to survive the last election. Today, they look more like an adroit political creation: just vague enough that the door remains open a crack, if Alberta, Ottawa and industry each plays the role scripted for them by the Clark government. The conditions require stricter environmental standards from Ottawa, meaningful accommodation of First Nations’ interests and a bigger financial share of the benefits for British Columbia. If all of that can be done, the B.C. premier will be able to say that she fought for her province and won. If the efforts don’t win over British Columbians, however, she still has the option of saying no to an unpopular development.

Already, Clark can claim some progress. In the spring, the federal government announced measures designed to answer B.C.’s demands for tougher regulation of oil spills on land or at sea. On the East Coast, Transport Minister Lisa Raitt announced a series of measures in mid-May aimed at bolstering tanker safety, including a requirement that industry pay all cleanup costs in the event of a spill. The next day, Raitt was on the West Coast promising tougher regulations for pipelines, giving the National Energy Board increased regulatory control over the 73,000 kilometres of pipeline that transport more than $100-billion worth of oil, gas and petroleum products across Canada each year.

These changes are the result of what the B.C. government calls its “constructive federalism,” even if the province never comes around to supporting Northern Gateway, it will have nudged the nation toward more stringent environmental protection for the movement of heavy oil. “If the five conditions were implemented, Canada’s environment would be safer from coast to coast,” says one B.C. official. “This would be our gift to Canada from B.C.—this will be the legacy item.”

62% of Albertans “would be OK with B.C. getting a share of oil revenues from Northern Gateway.”

Meanwhile, Enbridge officials have finally come to understand that they need to tread more carefully in B.C. and have offered assurances to the B.C. government that they will try not to start a conflagration as they wade through the National Energy Board’s conditions—a process that will likely carry on through 2015.

The governments of Alberta and B.C. have a group of senior bureaucrats also working together on how to address Clark’s five conditions. Part of Alberta’s objective, here, is to develop a national dialogue around the economic benefits of natural resource development that isn’t drowned out by the politics of pipelines in B.C. “This isn’t just about LNG, oil, mining or forestry. It’s about natural resource development generally, and it is essential for the West to be able to move forward with that development,” says one Alberta official. “Nationalizing that conversation needs to happen.”

In B.C., the economic benefits of resource development have long generated a debate about the cost to the environment. For decades, politicians have struggled to span the gap between job creation and green values.

At a speech last March at a Globe Conference in Vancouver—a gathering of “environmental business” interests—Clark used her stance on oil pipelines to demonstrate that her government is straddling the two often-conflicting positions.

“British Columbia is very much open for business,” she told the delegates. “We are open for business, in particular the business of leaving our province, our country and our world in better shape than we found it.”

She reminded her audience of the “war in the woods”—a protest over logging old-growth forests in Clayoquot Sound on Vancouver Island that spread and threatened to grind the province’s forest industry into the ground with civil disobedience and international boycotts in the early 1990s. Clark said successful resource industries have learned from that battle that, in her province, they have to earn social licence. “The industry did not shrink from those challenges. Instead, they found a way to grow, a way to collaborate, a way to cooperate and a way to do it right. And so now, today, forestry is again a very profitable business in our province because they are innovating. They are embracing change.”

Clark’s comments were not just for the benefit of her audience that day. It was also a message to the oil industry and to the government in Alberta.

Alberta Premier Jim Prentice—the former Conservative MP who served variously as Stephen Harper’s minister for Indian affairs, industry and the environment—won the leadership of the Alberta Progressive Conservatives in September on the promise of pursuing new oil pipeline capacity as his top priority. He is familiar with the obstacles faced in B.C. during his brief stint, early in 2014, as an envoy for Enbridge, tasked with trying to repair relations with First Nations on the West Coast.

Prentice knows that opposition won’t easily be overcome. He sees Clark’s five conditions as a guidebook to understanding what B.C. wants, and what changes are needed, to earn social licence. “Legitimate questions have been raised about protection of the environment and the role of the First Nations in environmental protection and economic partnership,” he says. “I always felt that the markers designed by Premier Clark would need to be addressed.”

Prentice was out of politics when Clark made a splash with her five conditions for approving oil pipelines in 2012. Today, he says he wishes his predecessor, Alison Redford, had recognized more quickly that B.C. had actually created a vehicle for pipelines to move ahead, not an obstruction.

38% of British Columbians say the Enbridge Northern Gateway project should proceed.

“I thought it was unfortunate we didn’t make more progress,” he says. He notes that he has been delivering the same message for five years—be it in federal politics, in private industry or wearing his hat for Enbridge. “I have repeatedly pointed out there will be no access for Alberta’s energy resources to the tidewater on the West Coast unless there is a meaningful partnership with First Nations and a recognition of some of the issues that Premier Clark has put forward.”

With the deep opposition to the Enbridge project in particular, the B.C. government appears comfortable to stay out of the fray—leaving it to industry and other governments to resolve the remaining issues. The accommodation of First Nations’ interest will likely prove the most difficult of B.C.’s five conditions to address, but there remains the contentious issue of just how much B.C. is due as a “fair share” of the financial benefits. Clark is waiting for industry to make the “what’s in it for us” case to British Columbians; the province has never said just what that share should be, only that the expected slice of the pie isn’t enough.

In the end, weighing the risk against the benefit will be a complex formula, and it will ultimately be decided at the political level—and in the boardroom. Alberta has already made it clear that it will not share its royalties, so B.C. is expecting pipeline proponents to stand and deliver. Whether it is Kinder Morgan or Enbridge, or some other new champion of an oil pipeline, B.C. is waiting for an offer it can’t refuse.

One former politician with an intimate understanding of all these competing interests is Stockwell Day. The former federal Conservative MP from B.C. is also a former cabinet minister in the Alberta government and played an important role in Clark’s electoral victory in 2013, campaigning at the BC Liberal leader’s side to help her shore up her party’s right-of-centre support. Using his political connections in Edmonton, Victoria and Ottawa, Day has been working behind the scenes as a broker, trying to forge some common ground between the two provinces and the federal government. (Day is also a senior advisor to Pacific Future Energy, a Vancouver company that hopes to build a $10-billion “green” oil refinery along B.C.’s north coast.)

Day sees a path for more Alberta oil to reach B.C.’s ports. As an insider in the BC Liberals’ 2013 election campaign, he followed the party’s intensive polling on the oil pipeline issue that helped Clark craft a position that she could sell to voters. “We did a lot of polling before and during the election,” he says. “One of the things we really drilled down into was the whole issue of social licence. What we found was the majority of British Columbians said, If it is safe environmentally, if First Nations have been properly dealt with, and if there is a net economic benefit—that’s the trifecta—then the support for a pipeline is there.”

The five conditions happen to cover that trifecta. “It was brilliant politics on the part of Premier Clark to be standing up for British Columbia and the environment and saying it’s not going to happen without these five conditions. But the really brilliant part is that it was also the right thing to do.”

Tempering his praise, Day offers the premier a cautionary note against overplaying her hand. Does B.C. need Alberta and its oil dollars? Maybe not today, but perhaps tomorrow: “As hopeful as we are about LNG in B.C., people are realizing you can’t put all your energy eggs in one pipeline.”

Talking pipelines

Details from an exclusive survey by Insights West for BCBusiness and Alberta Venture

We asked market research firm Insights West to poll Albertans and British Columbians on their attitudes regarding pipelines. For pollster Mario Canseco, two things stood out: one, Albertans were almost as concerned about the environment as their crunchy-granola neighbours (with 59 per cent of Albertans believing it was more important to protect the environment than foster economic growth, compared to 65 per cent of British Columbians). “This notion of the economy taking priority over environmental issues is not supported by a lot of people in both provinces,” says Canseco.

And second? Sixty-two per cent of Albertans are willing to give B.C. a share of oil revenues from Northern Gateway—one of B.C. Premier Christy Clark’s five conditions for getting a pipeline built but a demand vehemently opposed by former Alberta premier Alison Redford. Canseco thinks it might have something to do with the more conciliatory tone set by new Alberta premier Jim Prentice. “There’s a lot of trust in him to do the right thing and handle negotiations properly.”

The survey of 802 British Columbians and 705 Albertans was conducted Oct. 3-8, 2014. Margins of error are +/- 3.5% and +/-3.7% for B.C. and Alberta, respectively.