All factions of the Canadian energy industry wasted no time in teaming up to tell the newly-elected minority government in Ottawa it will step in a political minefield if it interferes with the status quo of deregulation and free trade with the United States.

The message was delivered at the same time to all 13 of the nation’s provincial and northern territorial governments by a national coalition, titled the Energy Dialogue Group, of 14 industry associations representing producers, dealers, transporters and distributors of natural gas, oil, coal, power, wind energy and conservation.

The group made the case to an annual conference of Canada’s federal, provincial and territorial energy and mines ministers, who met this year in the Nunavut capital of Iqaluit. The location did double symbolic duty, affirming the stature of the Arctic region as Canada’s newest government jurisdiction and the long-range trend of both gas and power production and transmission to spread ever farther north. While closed to the public, the sessions included talks with industry leaders.

The meeting coincided with the appointment of a cabinet by Prime Minister Paul Martin as the first official action since the June 28 Canadian election, which reduced his Liberal party to only the largest minority of the seats in the House of Commons. The result stoked industry anxiety, because it forces Martin to court support from other parliamentary parties including the left-leaning New Democrats.

Apart from particular requests for specifics, such as tax changes, the event was a demonstration to Canadian politicians of all stripes that the national economic scene has changed drastically since the 1970s and early-’80s “energy crisis.” High gas and oil prices have revived memories of the crisis that are still strong among industry leaders, many of whom went through harsh times including the trauma of terminating the jobs of others or being dislocated themselves or both, in some cases. In Canada, notable features of the era included a shared faith among federal and provincial governments that energy, including gas exports and prices, were a fertile field for intervention that would bear fruit in electoral support and fatter public treasuries.

The attitude, which had roots dating back to a 1907 ban against exports to the U.S. of Canada’s first gas production in southern Ontario, had its highest, most aggressive expression in the 1980 National Energy Program. All factions of the industry are nowadays so opposed to a revival of the NEP’s vigorous export controls, price regulation and federal taxation that central Canadian consumer regions have even taken to defending the claims of western producer areas to constitutional rights to keep the proceeds from high energy prices.

One message to the ministers, startling for everyone old enough to remember the 1970s conflicts between Canadian energy producer and consumer regions, was that Alberta should keep its oil and gas revenue gains as a fair price for satisfying Canadians’ fuel needs. “We all know where the ownership of these resources lies, for better or worse, and let’s move on from there,” Energy Dialogue Group Mike Cleland said in an interview.

Under the Canadian constitution, provinces own mineral rights except in cases where they were transferred to private interests such as 19th-Century railway projects before the political jurisdictions were created, in 1905 in Alberta’s case. “Markets will deliver the goods for the most part as long as they’re allowed to work,” said Cleland, who is also president of the Toronto-based Canadian Gas Association. “That’s been a big success story for Canada.”

No changes should be made to the “continental market” with the United States that evolved after the 1980 National Energy Program (NEP) was scrapped by the 1985 Western Accord between the federal, Alberta, British Columbia and Saskatchewan governments, Cleland said. “What we want in fact is for the ministers to affirm that system.”

He acknowledged corporate profit and provincial royalty gains in Alberta from high energy prices have potential to revive political pressure for Ottawa to grab a share of the wealth but said he saw no revival of the NEP on the horizon. “The probability of that is extremely remote,” Cleland predicted. “The dialogue here [in Iqaluit] if anything makes it less likely.”

The group’s affirmation of the status quo was, nevertheless, highly welcome among Alberta gas producers that account for about four-fifths of Canadian output. Volumes, prices, corporate profits and especially provincial royalties are so strong that the jurisdiction is suffering from a virtual embarrassment of riches that revives memories of how similar performances made it a target in the energy crisis era. As the energy and mines ministers prepared for their conference in Iqaluit, Alberta Premier Ralph Klein announced creation of a special retirement account to finish paying off 100% of the provincial debt as the various types of paper involved mature.

Only 10 years ago, the Alberta government’s debt stood at C$22.7 billion (US$17 billion) in a province with a population of fewer than three million at the time. At the same time as the last C$3.7 billion (US$2.8 billion) left of the debt is paid off, the provincial budget is expected to keep on running at a surplus unless there is a severe reversal on the North American gas market. Alberta gas royalties, levied in a range of about 20% but varying depending on types of production, were C$5.45 billion (US$4.05 billion) in the province’s 2003-04 fiscal year ending March 31. That was 70% of all natural resource royalties including oil and 21% of total provincial revenue from all sources including cash transfers from the federal government for national health, education and wealth programs.

Oil is off even though production is on the rise because royalties are being deferred as a development incentive for the oilsands, the new source that is replacing depleting conventional reserves. Times have changed drastically since governments led, as part-owners as well as highly interventionist regulators, the first waves of Canadian energy development, the ministers were told in Iqaluit. At the same time as governments no longer have the resources for the ever larger projects required, Canada has to understand its energy companies must compete for attention on international investment markets, the conference was told.

“The overall policy framework for the energy industry needs to be clear, sensitive to investors’ priorities and stable,” Cleland’s group said in a written brief to the federal-provincial ministers conference. The group called for “smart regulation,” including co-operation by federal and provincial agencies in cases where environmental or economic jurisdictions overlap with potential to delay projects. Canadian corporate taxes should be competitive with the systems of other countries, the brief said. The group said the U.S. pulls ahead by letting pipeline and electricity companies write off project costs in 15 years.

Canada is less generous by setting depreciation periods at 25 or more years. The minority government elected in Ottawa June 28 appears to understand the Canadian energy situation and will not likely hurt the industry, Cleland predicted. The industry is not making requests for large new actions that the weakened national government might have to rebuff to keep support in the Commons. “We’re not looking for legislative change.”

The industry emphasis is on the way governments implement regulations, and that does not require action by Parliament, Cleland said. “We can work with the basic framework we’ve got and make good progress.”

While the energy and mines ministers made no formal collective reply to the industry group, it was encouraged by signals sent in the announcement of Martin’s new cabinet in Ottawa. The prime minister dismissed former Liberal environment minister David Anderson, a British Columbia MP who actively resisted provincial and industry efforts to end a gas drilling moratorium offshore of B.C. and advocated tough enforcement of Canada’s obligations as a signatory to the Kyoto treaty on cutting greenhouse-gas emissions. Martin replaced Anderson with a Quebec MP, Stephane Dion, who is known as a tough negotiator and said he supports Kyoto but brings no baggage of specific previous commitments to the environment portfolio.

As natural resources minister (the current Canadian name for the cabinet energy seat), Martin kept John Efford, a Newfoundland MP who represents an electorate at least as keen as Alberta to maintain provincial resource rights and access to U.S. markets for its developing offshore industry.

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