CANADA

An energy pact to please

Gordon Legge July 11 1983
CANADA

An energy pact to please

Gordon Legge July 11 1983

An energy pact to please

Gordon Legge

Immediately after signing the new energy agreement with Alberta last week, federal Energy Minister Jean Chrétien jokingly noted that his horoscope for the day did not augur well. “Observe a signal to delay making a commitment,” the advice for Capricorns read. “More information is needed before you sign a document or agreement.” Chrétien quickly dismissed it with the quip that the newspaper that contained the advice, Toronto’s Globe and Mail, was “wrong again.” Indeed, Chrétien said that the agreement was good for everyone involved—the consumer, the oil and gas industry and the governments in Ottawa and Edmonton. “Everybody wins,” he exulted.

Certainly, the new pact was unlike the champagne-toasted agreement signed in September, 1981, by Prime Minister Pierre Trudeau and Premier Peter Lougheed. Despite the smiles that prevailed the day that deal was signed, the agreement was the result of 13 months of acrimonious negotiations which became known as the “energy wars.” Ultimately, it reduced oil industry revenues and left a legacy of bitterness between the two leaders which lingers to this day. And neither government foresaw the recession that subsequently caused world oil supplies to overflow and world prices to plummet, leaving the hard-won accord in tatters.

Four months ago Chrétien and Alberta’s novice energy minister, John Zaozirny (pronounced Zah-zer-ny), reopened the agreement. Unlike the previous negotiations, a spirit of co-operation and cordiality marked the talks. The tone produced results in one-third the time it took to negotiate the 1981 deal. The new 18-month pact, which took effect on Canada Day last week, protects the consumer against increases in the price of oil and natural gas while providing additional revenues to both the oil industry and the cash-starved federal government. “There is nothing negative about the agreement,” said John Porter, managing director of the Independent Petroleum Association of Canada (IPAC), which represents about 200 small and medium-sized oil companies. “It is very positive, not only for the industry and for the Canadian economy, both in Western and Eastern Canada, but for the consumer, who benefits from this as well.”

For the consumer, the deal means not having to worry about an increase in the price of gasoline or heating oil until the beginning of 1985, at which point the next federal election may be over. The agreement freezes the price of con-

ventional Canadian crude oil discovered before 1974 (roughly 60 per cent of Canadian production) at the current price of $29.75 per barrel (bbl). Taking into account the increases scheduled in the 1981 agreement and the drop in world prices, that amounts to 79.3 per cent of the current world price of $37.52 (U.S.). Although that is higher than the 75per-cent ceiling promised by the Liberals during the 1980 election and entrenched in the 1981 deal, the federal cabinet decided not to press for a rollback because of the drastic impact it would have had on the oil industry and federal revenues. A previously scheduled $4-per-bbl increase, due to take effect July 1, was also rescinded. As well, the price of natural gas will not rise above 65 per cent of the price of oil, providing continued incentive to east-

ern consumers to switch to gas from oil.

The oil industry was also pleased, even though it did not get world price for all classifications of oil, as it had wanted. As Chrétien was leaving the news conference in Calgary, he met iPAC’s Porter. “Congratulations,” Porter said. “Are you happy with it?” Chrétien asked. “Yes,” Porter beamed. Indeed, unlike the previous negotiations, during this round both Chrétien and Zaozirny consulted frequently with the industry. The change in approach produced results. The extra funds will come at a critical point for most members of the Oil Patch, particularly the drilling, service and supply industry, in which banks have been holding off on foreclosures in the hope of an economic

turnaround. Oil producers will now have badly needed financing for exploration and development. Under the pact, oil found between 1974 and 1980 will now qualify for world price, rather than 75 per cent of world price. And oil produced from new wells drilled to enhance production from existing oilfields will also qualify. Only “old” oil discovered before 1974 will remain at $29.75 a barrel.

Finally, the new agreement gave natural gas producers two scheduled increases, one this summer and another in 1984. But both the federal and Alberta governments will absorb the increases from their coffers to protect consumers. Moreover, the federal government agreed to subsidize any increases above five per cent in transportation charges to be levied in August by the National Energy Board against Trans-Canada PipeLines Ltd., which moves natural gas from West to East.

(The subsidies could amount to as much as $100 million.)

Although he had flown in the day before, Chrétien only met face-to-face with Zaozirny at 9 a.m. Thursday for half an hour. For both men the celebratory handshake represented a triumph. For Zaozirny, 36, a back-bench MLA who had been thrust into Alberta’s key portfolio after last fall’s election, it was a test of mettle. Lougheed could no longer be accused by the Alberta opposition of recklessness in pitting a rookie minister against one of Ottawa’s shrewdest politicians. For Chrétien, the agreement augured well for future ambitions. ‘“There are no more problems,” Chrétien commented. “I should have a new portfolio.” That, of course, will depend on the stars and on Pierre Trudeau.