THE GREAT PIPELINE DERATE

W.P. WILDER,ERIC KIERANS February 1 1974

THE GREAT PIPELINE DERATE

W.P. WILDER,ERIC KIERANS February 1 1974

THE GREAT PIPELINE DERATE

W.P. WILDER

“Canada must have access to the Mackenzie Delta gas reserves to ensure supplies before the end of the decade. ”

What price nationalism?

Canada and the United States both must consider this question in the present urgent quest for assurance of energy supplies. Never before has the need for ample indigenous supplies of energy seemed more starkly apparent in the interest of Canadian security, Canadian comfort, Canadian economic well-being.

Can the two nations which share the major portion of North America afford to pursue uncoordinated and uncooperative policies, even when it is clearly costly to each? How many billions of dollars in additional energy investments are we prepared to make for the sake of following completely independent courses? On top of already skyrocketing energy costs, what additional premium are we prepared to pay for our individual fuel costs? Can we tolerate delays and bottlenecks that will compound present shortages or create future shortages? A basic question is whether unrelated policies to achieve energy self-sufficiency would work in the economic interests of both nations. After spending four years and $50 million, our conclusion is that they would not.

Natural gas provides one third of all the energy consumed in the United States. In Canada, it provides one quarter of our energy needs; more than coal, coke, hydro and nuclear power combined. It will remain one of the most important components of our energy supplies for several more decades.

Virtually all of the natural gas we use in Canada is provided by the four western provinces, principally Alberta. Reserves here will not be exhausted for many decades. But before the end of the Seventies, the rate of western gas production will have peaked and started a gradual decline. Before 1980 we will need a source of supplementary natural gas supplies if we are to satisfy our own requirements and provide the limited volumes which have previously been authorized by the government of Canada for export to the U.S.

The most immediate prospect for a supplementary supply lies in the Northwest Territories and Yukon where, according to the Geological Survey of Canada, the potential reserves are almost as great as those of the western provinces. (Even larger long-term potential gas reserves lie offshore from the Atlantic coast and in the Arctic islands.) The major portion of this northern mainland potential is in the Mackenzie Delta region, where the initial stages of exploration have established significant reserves.

The United States also has a large northern gas supply a few hundred miles west of the delta on the North Slope of Alaska. The amount discovered in Alaska accounts for nearly 10% of proven U.S. natural gas reserves.

Canada must have access to its Mackenzie Delta gas reserves to ensure adequate supplies before the end of this decade. The United States needs access to its Alaskan North Slope gas to help alleviate present critical supply shortages.

Both these requirements can be met by the proposed $5.5 billion Arctic Gas pipeline, which would most economically transport the Alaskan North Slope gas and the Mackenzie Delta gas through a single transportation system.

continued on page 64

ERIC KIERANS

“If there is a better way than building the pipeline for a nation state to commit suicide, I have not yet heard of it. ”

Build more pipelines to export more oil and gas now? Tell it to your children! Or, better, ask them what they think of a Canada that gives away its gifts of energy for a mess of promises about fast-breeder reactors and solar-system breakthroughs. At least, if they are brought into the decision-making process now, we might be spared the bitterness of their recriminations as they survey a Canada immensely poorer than it is at the present moment.

Professor Charles P. Kindleberger in American Business Abroad wrote that “the nation-state is just about through as an economic unit.” The thesis presents a view of the world in which the “crucial” decisions, relating mainly to investment and hence output and employment, will be made by a few hundred international corporations. The governments which are elected must, willy-nilly, accept their fate and work out the priorities and needs of their peoples within that framework.

The thesis does not bother me, particularly, because I know that it is not going to happen. The Arab states are excellent examples of nations that are not going to accept the role assigned to them by the international oil companies, i.e. suppliers of raw energy to fuel the extravagant growth and affluence of the industrialized world. What does bother me is that, 20 years before Professor Kindleberger wrote his book, Ottawa had already accepted the thesis that growth does not develop from within, for a nation as for the individual, but can be conferred from without like a kind of honorary degree. (As a result, no other nation in the world is so dependent for its growth on foreign investment and international corporations as Canada. We are where we are, not because others have done us dirt but because the Department of Finance in Ottawa has, in its economic wisdom, always believed that this is where we should be. They still do. Canadians apparently have not the entrepreneurial ability, initiative and resources to order their own affairs. How would they know if Canadians have not been put to the test?

The Mackenzie Valley pipeline is another example of our roads to resources program. Canadians build the roads. Others take the resources. The Canadian Gas Arctic Study Limited was not formed to give Canadians a stake in the converted value of their own resources. It was formed to build a transportation facility so that those international companies, which have been given full and complete control of our petroleum wealth in the Mackenzie Delta by the federal government, can ship out the gas that American consumers need today at the expense and to the detriment of Canadian requirements in the Eighties.

Canada is noted for its sophisticated networks of railways, highways and pipelines built in large measure to accelerate the movement of our raw wealth to all corners of the globe. The Arctic gas pipeline is just another such facility. Canadians who invest in it will probably get their money back and interest, too. Dividends are possible in a remote future but they will be minimal. But this is not the real issue. The real gains will be made by those international companies that will pump the gas through the pipelines. Canadian ownership of the gas is still theoretically intact but our federal government has transferred control of the resource to these companies for an interest that will vary between one-twentieth and onetenth of the wellhead price. The value of the gas, less the costs and negligible corporate taxes, belongs to the companies. We will be, as Kindleberger suggests, more dependent on them and what they do with the money than on our own government. If there is a better way for a nation-state to commit suicide, I have yet to hear of it.

continued on page 64

from page 21

W. P. WILDER

At full compressor horsepower, the 2,600-mile Arctic Gas pipeline would deliver more than four billion cubic feet of gas per day, exceeding present total demand in Canada. At least half of this would be U.S. gas flowing to U.S. markets. Some Canadian gas from the delta would also be exported to U.S. markets, if it is found by the federal government to be surplus‘to Canadian needs.

The alternative would be an all-Canadian system to move the Mackenzie Delta gas, and an all-American system to move the North Slope gas.

The costs would include several billion dollars in additional investments; greatly duplicated transportation costs to be paid by both Canadian and U.S. consumers; and a significant delay in getting Canadian natural gas to Canadian markets, resulting in gas supply shortages in Canada.

Canada’s demand for natural gas is not now, by itself, sufficient to provide the volumes that would make it economically feasible to transport this Arctic gas to markets more than 4,000 miles away. Without a pipeline that also transports Alaskan natural gas, it does not appear possible to provide Canadian consumers with Mackenzie Delta gas by the time it will be needed, and at economic costs. The transportation cost for delta gas will be extremely high unless it is combined with the flow from Alaska.

Neither does an all-American system for the movement of Alaskan gas appear to be in the best interests of the United States. It would involve a pipeline from the North Slope across Alaska to the Pacific Coast where the natural gas would be liquefied (by chilling to -260 degrees Fahrenheit) for shipment by tanker. Arctic Gas estimates that such a system would add many millions of dollars per year to the cost of transporting

North Slope gas to U.S. markets. And it

would deliver less gas to consumers, because a significant portion would be used in the liquefaction process. More importantly, this system would not efficiently serve all U.S. markets.

The Canadian Arctic Gas pipeline would pick up gas from the Mackenzie Delta fields, and Alaskan gas from Alaskan Arctic Gas pipeline on the AlaskaYukon boundary. It would transport these supplies across the Northwest Territories and Alberta to other pipelines supplying both Canadian and U.S. consumers. It would be majority Canadianowned, Canadian-controlled and Canadian-operated. More than five years and $50 million have already been spent examining in detail the engineering, economic and environmental aspects of the pipeline. Approvals are now being sought from the Canadian and U.S. governments in time to allow completion before the end of this decade.

While Canadian Arctic Gas will be primarily a Canadian undertaking, it requires a cooperative approach by both nations to at least one vital aspect of the energy problem. It demands that both governments clearly recognize and confirm now the cooperation required by the self-interests of each nation. Otherwise, both nations will suffer the costs — in energy supply and dollars — of going our separate ways. ■

from page 21

ERIC KIERANS

We elect governments not only to improve the present but also to lead us into the future. They, at least, should be able to take the long-term view. Conspicuous consumption now at the expense of the next generation is not a worthy objective. And, yet, that is what our policy of resource exploitation and accelerated exports amounts to. Since the value of the resource, the economic rent, has been assigned to foreign corporations, it can be and often is transferred else-

where to pursue other opportunities. Hence, it is not available to Canadians to replace the depleted resource by new capital goods or investment in substitutes. Similarly, the accelerated depletion of the resources, while benefiting the foreign producers, can only be at the expense of tomorrow’s Canadian consumers. In the case of potash, this may be several generations away. In the case of energy, it is obvious that we are talking about our own and our children’s tomorrows.

If our governments are not concerned, how can we expect the private sector to be? By definition, the international company must take a short-run view. Since its leases have terminating dates, the principle must be to cash in now. The shorter the horizon, the smaller the risk. The mere act of transferring control of resources to the private sector prohibits the carrying out of the long-range policies which are the responsibility of governments to pursue. Resource companies know better than governments that some resources will yield greater returns in the future, but they also know that they may not be around to collect.

The pipeline will be built eventually to satisfy the growing needs of Canadian consumers. In the meanwhile, let us use some of those billions that we are in a hurry to raise by expanding crown exploration in Alberta and off the east coast, by investing in the tar sands, by investing in petrochemicals and the conversion of other basic resources if the private sector will not do it. We do not need to invest six billions in pipelines to secure 400 permanent jobs. A shoe factory can give us more jobs than that for less than one-twentieth of that amount. Or a housing program.

As long as we insist on being a resource exporting nation we can never be an industrial power. We cannot expect to ship Mr. Nixon an extra billion dollars worth of gas without his insistence on our importing his manufactured goods. If we try to do both, how would other nations pay us? The beginnings of an industrial strategy, of which we now hear little, demand a reassessment and reversal of our national policy of reliance on resource development.

If this nation-state is to survive as an “economic unit,” it must shed the policies of the past 25 years. We must do our own exploring, our own developing and our own planning in the field of resources, as Pierre L. Bourgault has pointed out so brilliantly in his study for the Science Council of Canada, Innovation And The Structure Of Canadian Industry. Canadians certainly have the resources and the will but does their government believe in them or does it continue to believe that it is only the multinational corporations that can make us great? ■