Tory green plan will kill oilsands
Claudia Cattaneo
Financial Post
Tuesday, March 27, 2007
CALGARY - Stephen Harper, the Prime Minister, should do himself a favour and stop running around the country talking about Canada as an emerging energy superpower.
The notion may have seemed catchy a couple of years ago, when enthusiasm for energy security and national wealth assured by the oilsands still exceeded Alberta envy or the green campaign to crush their development.
Now, it's as passe as Alberta's enchantment with the federal Tories and mismatched with Mr. Harper's own actions on the environment.
Indeed, the key people in the oil-and-gas sector who were supposed to lift Canada to superpower league are instead trying to figure out how to keep their plans afloat amid a federal and provincial government assault on the sector so severe it will take very high oil prices to pay for it. If not, expect project deferrals and cancellations.
Sure, each measure adds mere nickels and dimes to the cost of producing a barrel of Canadian oil.
Together, they shrink margins that are already challenged despite high oil prices, and show our governments are willing to change the rules in return for political payback.
The biggest blow yet could land as soon as Thursday, when Mr. Harper's government is expected to unveil national targets for greenhouse-gas emissions and air pollution for the main industrial sectors.
Word in the oilpatch is that Ottawa's plan will be tougher than Alberta's, but not as stringent as the Kyoto Protocol on climate change.
Translation: Canada's oil-and-gas sector will have to pay up to meet Alberta's new regulations, and pay up even more to meet Ottawa's.
(Under Alberta's greenhouse gas regulations, announced this month, the 100 facilities that account for about 70% of the province's total emissions are required to cut emissions intensity by 12%, starting July 1, or about six months earlier than expected. Large emitters have the option of making operating improvements, buying an Alberta-based offset or contributing to a new fund that will invest in technology to reduce emissions.)
While Ottawa's plan is not expected to kick in until 2010, the two sets of regulations are likely to stack up on top of each other.
Here's the rub: The costly environmental targets are landing on top of even more government grabs, some of them already announced, others expected.
In its latest budget, for example, Ottawa cancelled the cherished accelerated capital cost allowance, a break that allowed oilsands players to defer taxation until the cost of assets was recovered from earnings. This change punishes, in particular, Canadian oilsands startups, the innovators in the sector.
Meanwhile, the government of Alberta Premier Ed Stelmach, elected in December by promising more control over oil and gas development, is reviewing oilsands royalties.
It's expected it will result in higher payments, particularly as the provincial Tories gear up for a provincial election early next year.
Then there is Ottawa's decision to change the rules on the taxation of trusts. Even if you disagree with the move, the result is that a big part of the oil-and-gas industry is now in a deep recession.
More pain is expected from Newfoundland's energy policy, expected this spring. The government of Premier Danny Williams, another Tory, is expected to increase the rent for looking for oil and gas in his province's offshore. It shouldn't come as a surprise, then, that the rig that was supposed to drill two more wells in the Orphan Basin this year, the Eirik Raude, is instead on its way to the Gulf of Mexico and it's uncertain if it will return. That's on the heels of the loss of Hibernia South and Hebron projects due to higher provincial fiscal expectations.
Meanwhile, the Mackenzie pipeline, the biggest hope for an exploration push in northern Canada, is in need of big government help that is unlikely to materialize, since Ottawa doesn't want to be seen as helping oil companies.
The stock market response has been unforgiving.
Take a look at the stock prices of Canadian oilsands companies. They have all weakened by big amounts, making them vulnerable to takeovers by foreign multinationals, as shown by the Shell Canada Ltd. minority takeout bid by its parent, Royal Dutch Shell PLC.
The most troubling outcome of our governments' assault on a Canadian success story is that it increases the price of entry, favouring deep-pocketed foreign oil giants over dozens of smaller Canadian companies that need to watch their pennies.
Oil majors will be thrilled with the fallout, which means less competition and lower costs for their own oilsands strategies.
ccattaneo@nationalpost.com
AI
