Alberta oil sands is only source of tax revenue that can eliminate Trudeau government budget deficits
If the Canadian Government accepts the recommendations of the expert panel on modernizing the National Energy Board, Alberta will be given a gift of priceless value: As much new pipeline capacity as it can ever need or use. Why? Follow the money.
Finance Minister Bill Morneau introduced his first budget on March 22, 2016. He forecast a budget that fiscal year of $29.4 billion that year and a cumulative total for four years of $113 billion. Worse yet, looking five years out, the federal budget would still be $14.9 billion in the red.
Would Canadians re-elect a spendthrift Liberal party?
Maybe, but maybe not. Perhaps a re-energized Conservative Party with a new leader might make serious inroads into Prime Minister Justin Trudeau’s majority?
Either way, taming the deficit is good politics.
Even better politics is to generate enough tax revenue that the deficit is erased and a surplus becomes available for new programs, the hope and dream of every Liberal Prime Minister since penny-pincher Mackenzie King finally bowed out of Canadian politics in 1948.
What is the one industry that can single-handedly wipe out the Trudeau deficits?
Albertans know the answer: the oil sands.
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The Canadian Energy Research Institute estimates in its report, Canadian Oil Sands Supply Costs and Development Projects (2015-2035), that by 2035 the oil sands will generate $464 billion in tax revenue for the Canadian government.
That’s a staggeringly large number. Prime Minister Trudeau must slaver a little bit every time he thinks about it.
That’s money for a national childcare program. Or national pharmacare. Or funding for a response to the opioid crisis. Pick your favourite Liberal social program.
And let’s not forget something he talks about often, funding the transition to a clean energy future.
Let’s do the math on the oil sands, pipelines, and Canadian government revenues.
The Canadian Assoc. of Petroleum Producers says that the country produces about 4 million b/d of crude oil and has a similar amount of pipeline capacity to transport it to market.
Oil sands production is about 2.7 million b/d, but bitumen requires 30 per cent diluent to make it viscous enough to move in a pipeline. Therefore, that amount of bitumen actually requires 3.5 million b/d of pipelines.
My calculations suggest Canada is 800,000 to 1 million b/d short, which is why oil by rail transport remains robust.
During an interview for this column, Kevin Birns, energy director for IHS Markit, put the “pipeline gap” at upwards of 600,000 b/d gap by end of this decade, increasing sharply after 2020 if no new pipelines are built.
CAPP forecasts oil sands production to rise by 850,000 b/d by 2021, with another further 750,000 b/d coming on line between 2021 and 2030. That 1.550 million b/d, fully diluted, will require another 2 million b/d of pipeline capacity.
Based on these estimates, Canada needs 3 million b/d of new pipelines over the next 13 years.
“The need to build new energy infrastructure within Canada is clearly urgent,” CAPP President Tim McMillan said in a press release last summer.
“The need for new pipelines departing Western Canada has not diminished with lower oil prices, quite the opposite,” Birn, said last month upon the release of a report detailing market access constraints for Canadian oil producers.
“Canada remains a growth story with production volumes increasing since the oil price collapse. And with continued growth it appears inevitable that volumes will overtake an already-constrained system and create a resurgence of crude-by-rail.”
So, how many pipelines are in the pipeline?
On Nov. 29, Trudeau approved the 525,000 b/d Trans Mountain Expansion pipeline from Alberta to Burnaby, BC and the replacement of Enbridge’s Line 3 that will boost capacity by 370,000 b/d. Let’s call that 900,00 b/d all in.
The election of Donald Trump has put TransCanada’s 830,000 b/d Keystone XL project – designed to carry Alberta oil sands crude to Gulf Coast refineries in Texas – back in play.
Canada is still short about half of the pipeline capacity it needs just to get to 2030, never mind what increases in oil sands production might occur after that date.
TransCanada’s 1.1 million b/d Energy East project from Albert to the Maritimes could put a healthy dent in that number, but Trudeau insiders have always worried that traversing politically sensitive Ontario and Quebec could be an electoral disaster in 2019.
Trudeau is tight with Liberal Ontario Premier Kathleen Wynne, but her government is long in the tooth and facing its own energy scandals thanks to the botched Green Energy Act and sky rocketing hydro bills. What if Ontario elects an NDP government – which would almost surely be anti-pipeline – in 2018? Or a Tory government not in the mood to cooperate with the Trudeau Liberals?
And Montreal-region mayors, led by Denis Coderre and perhaps inspired by the concessions British Columbia Premier Christy Clark wrung from Kinder Morgan, are slithering about la belle province, blathering about their opposition to Energy East.
Stickhandling Energy East through that political opposition will require more than Connor McDavid shiftiness.
And that’s where Liberal guile comes in, abetted by the NEB expert panel report.
The report recommends a one year period to determine if an energy infrastructure project is in the “national interest.” A cynic might argue that nothing is more in a Liberal’s idea of the national interest than more tax revenue.
Here is how Carr described the Liberal take on consultation around pipelines during my interview with him last year:
Our strategy is to create a process and room for all Canadians who have an interest in these major projects to express themselves. Ultimately, the cabinet will takes its responsibility and make decisions in the national interest. We think that when those decisions are made, Canadians will say, “Yes, that was a thoughtful and reasonable way to get to a decision.” I know full well and so do you that not every single Canadian is going to agree that decision was the right one. But that’s the job of a government – to consult, to offer lots of opportunity for a discussion, and then to make a decision that we believe to be in the national interest, for which we shall be held accountable by the people of Canada.
This is essentially the blueprint for the NEB expert panel report tabled on Monday.
The key point here is that during the year dedicated to engagement, any Canadian who deserves to can make their views known. That includes premiers, mayors, eco-activists, First Nations – all the usual pipeline opponents. But also pipeline supporters and average Canadians.
Carr envisions a very lively national debate where every voice is heard, not just the loud ones that oppose a project.
And at the end of the year-long process, the Trudeau government makes its decision. If the federal cabinet gives the project the green light, then a two-year technical review by the newly formed Canadian Energy Transmission Agency, in conjunction with the Environmental Assessment Agency, takes place.
But the politics are done. No more dissent. Trudeau and company will have closed their ears.
And that, my friends, is how you co-opt the pipeline opposition.
Bring them in nice and close. Let them have their say. Spend a lot of time meeting, listening, consulting, and when you’re done and you’ve made your decision, the process is done.
Tout fini, as Coderre might say.
So long as the interests of the Alberta oil sands and pipelines intersect with Trudeau’s need to generate significant tax revenue, the Alberta energy industry is far and away the biggest winner of the National Energy Board “modernization.”