FUELING THE FEUD

PETER LOUGHEED,DON MACDONALD February 1 1974

FUELING THE FEUD

PETER LOUGHEED,DON MACDONALD February 1 1974

FUELING THE FEUD

PETER LOUGHEED

“It is our duty to seek fair prices for Alberta's nonrenewable resources. Unity depends on fair deals for Canadians. "

There is a certain bitter irony for me, a convinced federalist all my life, in the complaints being leveled at my government, complaints that Alberta’s energy policy is selfish and divisive, and that we don't care what happens to the rest of Canada. In fact, we care very much what happens to all of Canada; we just don’t happen to equate all of Canada with Toronto, Montreal and Ottawa.

Alberta’s energy policy is based on two underlying principles. The first is that we must make the best possible use of our valuable non-renewable resources, for the sake of all Canadians. The second is that a stronger, more diversified, more self-sufficient West will help, not hinder, Canadian unity.

These principles complement each other. If we are to make intelligent use of our resources, we must obtain fair value, in price and in jobs, for every barrel of oil and every cubic foot of natural gas we produce. This is not only our right, but our duty. After all, natural resources belong to the people of each province — not to the government, which is merely the trustee. The people of Alberta have no wish to see their gas and oil sold away at bargain-basement rates to power the industries that will sell us finished products at rates based on world prices, or higher if protected by tariffs. What we seek — and as far as I am concerned this is what the energy debate is all about — is that Alberta gas and oil create more jobs right here in Alberta. Resources mean jobs —jobs in construction, jobs in the oil and gas fields, jobs in petrochemicals, plastics and other allied industries, and jobs in plants of various kinds that depend on cheap and secure supplies of energy.

Alberta makes no apology for wanting to ensure that more of its resources should be used to provide jobs for people within this province, rather than being exported in crude form and bought back as finished goods.

No one suggests that British Columbia should sell its lumber at artificially low prices to benefit Ontario housebuilders — indeed, the people of British Columbia would object strenuously to any such arrangement — but lumber is a renewable resource, while petroleum is not. I have not heard of any Ontario proposals to cut the cost of tractors — on which so much of western agriculture depends — to domestic users. Indeed, the Barber Commission found that we were paying more, not less, than world prices for farm implements. And if Quebec textile manufacturers are about to lower their prices to westerners in return for the artificially low prices the East pays for our feed grains, well, word of their generosity has not reached Edmonton yet.

If other regions of Canada are able to obtain fair market value for goods that can be easily replaced, Alberta is surely entitled to ask for the same in regard to the sale of resources which, once depleted, can never be renewed.

World prices for energy, particularly oil, have risen sharply in recent months. I gather the essential complaint against Alberta is that we appear to be trying to take advantage of the Arab oil states squeeze-play, which is / designed in part to change the foreign policies of nations relative to Israel by raising oil prices and cutting off production. It should be noted that it has not been just the Arab states which have increased their oil prices. All other producing countries such as Venezuela, Nigeria and Indonesia have also dome so. Could it be that perhaps oil has been greatly underpriced for decades, relative to other things we buy, and that this has created a grossly wasteful use of a valuable depleting world resource? Could be that the big-car society of North America is an undesirable reflection of such waste — that we would have a better quality of life if we altered our consumption habits in terms of unnecessary uses of energy?

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DON MACDONALD

“A continued supply of clean energy at reasonable cost is fundamental to Ottawa's ambitions for Canadians."

The continued assurance of a supply of clean energy at a reasonable cost is fundamental to the ambitions that the federal government has for all Canadians.

Whatever the national goals may be — higher and more fairly distributed standards of living, better transportation, more effective communications, or any number of other aims — it is essential to have power available to attempt to achieve these ends. We do not develop energy sources for themselves, but for the simple fact that we cannot realize our other hopes without them.

The energy studies tabled in parliament in June — An Energy Policy For Canada, Phase 1 — pointed this up: “Energy resources and industries emerge at every point in Canadian life. Policy decisions have widespread and often unexpected impacts as they reverberate through the complexity of economic and social structures.”

In its energy policy, Canada stands at a swift-changing time of transition. Canadians find themselves facing a series of major energy development decisions comparable to those addressed in the late Forties and early Fifties. Then it was the development of oil and natural gas (thereby displacing our dependence on coal), the construction of major transcontinental pipeline systems, the embarking on a major program of exploration and development of the uranium, and the beginning of the development of the Candu reactor.

Now we have decisions to make on major pipeline systems from the Arctic, exploration programs in the northern and east coast frontiers, and major hydro electric developments such as the lower Churchill River in Labrador, James Bay in Quebec, and the lower Nelson in Manitoba.

The development process in the 1970s is significantly different from that of the Fifties. Now we have in our community both greater strengths to carry out these plans and a more critical public opinion about development.

In terms of the strengths, Canadian engineering has behind it two decades of experience in mastering, and indeed improving on, the techniques for resource development. Where in the 1950s many of the skills to carry out the projects were imported, in the 1970s these talents are to be found in Canada. In the same way the Canadian financial system has broadened its base and deepened its skills. Now the Canadian financial community can contemplate projects that in the 1950s even Wall Street would have approached with caution.

As to the more critical public opinion, the Canadians of the Seventies are far less willing to accept development for the mere creation of wealth. In this decade the community is asking penetrating questions about the rights and needs of people, environmental impact, Canadian participation, and the quality as well as numbers of jobs created. The public also questions the economic consequences of major resource developments, their effect on balance of payments, the capital markets and secondary manufacturing.

The problem that arises whenever we undertake to change any area of public policy is that of overcoming the misconceptions and the habits of thinking that have surrounded policy in the past. It was to overcome that obstacle and to focus the issues for choice that the government published in June its analysis of the energy industry in Canada. The analysis was intended to serve as a basis of fact upon which changing policy could then be founded.

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from page 20

PETER LOUGHEED

We in Alberta have said that it’s not our policy to act to the detriment of Canadian consumers — and that sudden and rapid increases in any key prices (gasoline at the pumps or home-heating fuel) are undesirable. We are prepared to move to a new price structure for crude oil by stages. But Canadians should not expect Albertans to sell a depleting asset like oil or natural gas below value for an extended period of time — unless to balance equities. They would urge the federal government to reduce Alberta costs to ship products to market and, hence, improve the security of our farmers and workers in the West.

Remember that it was the National Oil Policy and not Alberta’s doing that kept our oil out of eastern Canada for so long. During the 1960s, when our oil producers were frequently operating at 45% of capacity for lack of customers, westerners asked for access to the Montreal market through an extension to the pipeline that now stops in western Ontario. The reply was always the same, that it would cost more (but not much more) to use Alberta crude in Montreal than to import from Venezuela and the Middle East. One result of this policy was that many of the smaller Canadian independent oil companies, who lacked the financial reserves to continue operating at lower capacity, were forced to sell out. Foreign control of our petroleum industry increased as the giant foreign firms bought them up. Ottawa remained unmoved.

On January 11, 1973, Don Getty, our Minister of Federal and Intergovernmental Affairs, wrote to federal Energy Minister Donald Macdonald suggesting reconsideration of the Montreal pipeline project. Mr. Macdonald replied, on January 29, 1973, noting that “it is my understanding that the relative cost dis-

advantage of using western Canadian crude in lieu of offshore crude at Montreal refineries, at the present time, is greater than when this matter was considered by the Borden Commission”! Had Alberta’s suggestion been acted on promptly, Alberta believes that a pipeline could be carrying Alberta oil to Montreal by this spring. What the federal government said in effect was that it had weighed Alberta’s need for markets against the economic advantages to eastern Canada, and decided against us.

It strikes us now as strange that the same federal government should accuse us of putting the economic interests of one sector of the country ahead of those of the rest.

We have always argued that it was in Canada’s best interest to ensure national self-sufficiency in energy; now Ottawa has come around to our view.

When citizens in Ontario and Quebec this winter read that the possibility of a lack of heating oil to fuel their homes is the result of a reduction in foreign oil supplies, I ask them to inquire of the federal government and other governments — and of their utility companies

— why the “wonder fuel” of natural gas which has been available for many years from Alberta has been used mainly to fuel industrial plants in Ontario rather than to heat homes in Quebec and Ontario. Surely such a failure by the gas utilities of Ontario and Quebec should be quickly rectified in order to use our Canadian energy resources in the best way for our citizens.

We believe it is in Canada’s long-term interest to strengthen and diversify the western economic base. That is why I have laid such emphasis on the jobs that trail in the wake of resource development. Exploitation of the Alberta owned oil sands (some refer to them as tar sands) will create up to 10,000 new job opportunities for Canadians per plant

— a continuous program that will go for decades as plant after plant comes into production. But it is not enough to provide jobs during the construction of extractive industries, which will disappear when the building job is done. That’s why we are encouraging petrochemical and allied industries to move into Alberta. That’s why we have proposed a system by which Alberta industry would be able to buy natural gas at lower rates than other customers under a provincial rebate plan.

We inherited a system under which the people’s share of oil revenues was fixed to a maximum royalty rate of 16%%. That is, Albertans received one dollar in every six obtained for a barrel of oil, and the other five dollars went to the exploring companies.

As a new government in Alberta we are making major changes. One of the most important is that the Alberta

people through the government must receive a much larger share of revenues from the sale of oil and natural gas, which is owned by the people and leased to the explorers to find and to produce. The explorers and producers are entitled to a fair portion to cover their risk, their investment, and their initiatives — but so are the people.

Thus, after two years in office, our administration has doubled the citizens’ share of the oil and gas revenues and has now introduced a new system to increase the royalty rate substantially. I know many Canadians outside Alberta believe all this wealth places Alberta in a special position compared to other Canadians. However, the facts are that Ontario citizens still enjoy an average income much higher than Albertans.

The increased royalty rates are not intended to cripple the oil and gas explorers — they require reasonable cash flows as an incentive to the crucial task of extending the exploration and development of resources. Rather, our actions are designed to give Albertans a more equitable share in the use of their own depleting resources. For the same reason, we are moving to give our people new opportunités to invest a personal stake in their own natural resources. With the second Alberta oil sands plant we will participate directly, through the Alberta Energy Company, and shares in the ownership of this exciting company will be available to the public (although there will be a limit, in the neighborhood of 1%, on the shares any individual or company can possess, and control will always be vested with the provincial government).

Our long-run aim in Alberta is to build a diversified economy on a sound industrial base and to use our resources to spur that development. There would be a double benefit for all of Canada. In the first place, a viable western economy (and there would be inevitable fallout benefits for other western provinces from jobs created here) would not only reduce the tensions of growing western alienation, it would put us in a stronger position to help other regions of Canada through revenue-sharing agreements. In the second place, the growth of western industry would take some of the pressure off the crowded areas of the east.

In Alberta, we have developed a deliberate policy of trying to spread out our growth centres. In the same way, we believe that all Canadians would benefit from spreading more evenly across the land some of the industries now clustered in a narrow strip from Windsor in southwest Ontario down the St. Lawrence River Valley to Quebec City.

These, then, are the principles on which Alberta has acted and will continue to act. We believe it is our right and duty to seek fair prices for our nonrenewable resources, and we believe it is in the long-run interest of all Canadians that we should receive them. No responsible westerner wants to pursue policies that would harm any other regions, but every responsible westerner believes unity depends on a fair deal for all Canadians, and not just those who happen to live in Ottawa, Montreal or Toronto. ■

from page 20

DON MACDONALD

Several main conclusions stand out from the report. Firstly, that Canada has abundant resources or potential in all five major sources of energy — hydro, coal, natural gas, oil and uranium.

Secondly, most of this abundance is of a much higher cost than the energy resources that we have developed and enjoyed until now. The high cost is due either to the risks involved in developing the resources, or to their remoteness from market, such as Arctic natural gas, or because of the enormous investments required in order to bring into production such sources as the Athabasca oil sands.

Thirdly, that much of the lower cost resource base which we have developed until now has been committed for use, and for new energy demands we must have recourse to these higher cost resources.

The central dilemma that faces our energy planning is the same one that we have always faced in Canada in major resource development projects. In order to develop resources for Canadians, enterprises of massive scale have to be undertaken. Since the Canadian market for both capital and the product is not large enough to support such large operations, a commitment to foreign export becomes essential. Extensive foreign export however hastens the depletion of the resources, then bringing on more quickly a new demand for new energy sources for Canadians and hence back to the starting point.

And in addition to these problems there are those in the international community. While, unlike many other countries, Canada is fortunate to be endowed with strong energy resources, we are part of the world community and are affected by the strains and pulls exerted by external pressures. The fact that we have so much potential while others have less also causes problems.

continued on page 64

But as energy clearly emerges as a key issue in this last third of the 20th century, Canada faces the challenges from a solid base. With reasonable planning, a sense of urgency and not of panic, and a realization by the people that the era of cheap energy has run its course, Canadians can look to the future with assurance. ■