NGI The Weekly Gas Market Report / NGI All News Access

Alberta's Shift to Right Could Help Gas Producers

The Alberta government shifted to the right in a provincial cabinet shuffle last Wednesday by Premier Ed Stelmach, raising hopes among natural gas producers that they will win a two-year crusade to reverse royalty increases.

The energy minister who oversaw the hikes in 2007 -- Mel Knight, a northern Albertan whose first career was in the blue-collar field contractor working class of the industry -- was shunted off to the sustainable resource development portfolio. He now will work on long-range issues such as a province-wide land use plan until his already-announced retirement from politics after the next election, due in 2012.

The new energy minister, Ron Liepert, represents a legislature constituency in the industry capital of Calgary and is anything but a committed voice of the wage-earners and scholars who supported royalty reform as fair redistribution of profits on provincially owned resources (see NGI, Sept. 24, 2007).

Born and raised in rural Saskatchewan, Liepert did not finish high school before beginning a 40-year, on-the-job education in practical politics. He spent the 1970s as a radio and television reporter in the Alberta legislature's press gallery. In the 1980s he switched to the government side, first as press secretary to former premier Peter Lougheed then as a provincial trade representative in the western United States. Prior to winning his legislature seat in 2004 he also worked for Telus Corp., the "privatized" former Alberta Government Telephones, ran a public relations consulting firm and owned a child care center.

Liepert, while acknowledging that there are high expectations for a "competitiveness review" begun in mid-2009 by Knight, made no immediate promises. But Stelmach described Liepert's appointment to the energy ministry as restoring communications between the industry and the government after the long grudge match over a royalty reform enacted in 2007 and implemented last year.

Liepert will have a Calgary office, "spend some time at the Petroleum Club and the Ranchmen's Club, keep dialogue going with the energy industry," the premier promised. In previous cabinet roles as education and health minister Liepert quickly earned a reputation as a man of action, prepared to make changes swiftly and take the resulting political heat.

"It's probably helpful that he's from Calgary...It makes sense," said Gary Leach, president of the Small Explorers and Producers Association of Canada. "We are pleased," said Travis Davies, communications officer at the Canadian Association of Petroleum Producers.

The key change in the shuffle -- a promotion of southern Albertan Ted Morton to the finance ministry from sustainable resource development -- was an even stronger signal that the government's mood has changed since the recession abruptly ended the gas and oil province's fat years of astronomical revenue surpluses and full employment. Morton is as close as any Canadian politician ever comes to being an American-style conservative Republican.

Born in Los Angeles, Alberta's new 60-year-old finance minister grew up in Wyoming, where his father, Warren Morton, was in the oil and gas business, served as Republican speaker of the state House of Representatives in 1979-1980 and was the party's 1982 candidate for governor. Ted Morton made the jump into the Alberta legislature from the political science faculty at the University of Calgary, where he landed in the 1980s after earning bachelor's, master's and doctorate degrees in Colorado and Toronto.

Morton is renowned as a social and economic conservative. Before going into provincial politics, he worked as policy and research director for the federal Canadian Alliance party, which grew up in a "unite-the-right" campaign into the current national Conservative government. His close peers as an architect of contemporary Canadian conservatism included Prime Minister Stephen Harper. In Alberta, Morton rapidly rose into the provincial cabinet and placed among the top three candidates for the premier's job in the 2006 Conservative leadership campaign that Stelmach won only after a hard, close fight.

Morton's stature as a founder of a Canadian conservative faction known as the Calgary School makes him a potent political answer to the meteoric rise of a former fringe party. As its name suggests, the Wildrose Alliance has the same political roots as the new finance minister. Since mid-2009 the party has risen from obscurity into the lead in current popular opinion polls by capitalizing on a Calgary by-election victory and widespread anger over lean-times, provincial deficits and job losses. Two Conservative members of the legislature recently defected to the Wildrose, giving it three seats in the house.

Alberta gas producers and financial firms have organized well attended Calgary meetings to give Wildrose leader Danielle Smith podiums for spreading a gospel of small government, admiration for entrepreneurs and government spending discipline. Smith has yet to specify what she will do if she wins power but has appointed as her energy adviser well known critic of provincial royalties and regulation Dave Yager, a Calgary businessman and chairman of the Petroleum Services Association of Canada.

Against the backdrop of political change, a drumbeat of industry requests for favorable royalty modifications and decreases continues. As Stelmach put the finishing touches on his cabinet overhaul, petroleum engineer Boyd Russell spread results of a highly critical analysis by Energy Navigator Inc.

The study focused on the conspicuous absence in Alberta of shale gas development. "The current Alberta royalty structure had the highest burden of all provinces and states analyzed," concluded the comparison with regimes in British Columbia, Texas, Louisiana and Pennsylvania.

The study found that Alberta alone has no special incentives for shale gas development, leaving the advanced production method to require a price recovery to an annual average US$5.90/Mcf -- at least $1 more than anywhere else -- just to break even under the current high royalty regime. Shale gas policy has been identified as a top priority by industry and financial submissions to Alberta's competitiveness review.

©Copyright 2010 Intelligence Press Inc. All rights reserved. The preceding news report may not be republished or redistributed, in whole or in part, in any form, without prior written consent of Intelligence Press, Inc.

Comments powered by Disqus