David Olive: Ottawa, Canada's Quarter-Century Old Oil Revenue Sharing Plan Solid
Ottawa's oil revenue sharing plan of a quarter-century ago was reviled by Alberta, but it was well intentioned, writes business columnist David Olive
In speeches across North America in recent years to attract investment dollars to his province, Alberta Premier Ralph Klein sometimes includes a potted history of the Canadian oil patch.
In Klein's telling, Alberta fought Ottawa tooth and nail in the 1930s for control of its resource wealth, then went cap in hand to foreigners to build its oil and gas industry, since easterners showed no interest in financing the fledgling Calgary oil patch. Come the Organization of the Petroleum Exporting Countries' oil shocks of the 1970s, Ottawa suddenly took an interest in Alberta's energy windfall by expropriating it with a series of arbitrary measures culminating in the loathed National Energy Program, introduced 25 years ago yesterday.
The NEP was the culmination of a decade of "energy wars" between Alberta and Ottawa over energy revenue sharing. It was a short-lived set of taxes, rebates, subsidies and expropriation provisions that were designed to give Ottawa a larger share of the windfall of the energy-producing provinces; to Canadianize a foreign-controlled oil patch; and to promote national self-sufficiency in energy through conservation measures and incentives to spur exploration on federal lands in the remote Far North and offshore regions.
The NEP alone, Klein told a business audience in Halifax in 2001, "drained 50,000 jobs and $100 billion in revenue out of the province." It was a searing indictment, and Alberta nationalists give voice to it today with no less vehemence than they did a quarter-century ago.
"As signs out of Ottawa make it look like NEP II might be coming down the pipe," Calgary Sun editor Licia Corbella wrote Thursday, without citing evidence of renewed Ottawa predations, "many Albertans are wondering why this province stays in Canada."
...
Poorly conceived though it was, the NEP was driven by real enough fears outside Alberta that 10 per cent of the country's population was getting richer while the rest of Canada would soon be impoverished by oil prices expected to hit $60 (U.S.) to $100 per barrel by the end of the century, if not sooner. The tangible proof of Ottawa's quandary was that Alberta's nest-egg Heritage Fund was projected to exceed $150 billion in assets by the mid-1980s, while Ottawa's outlays for subsidizing energy prices in Central and Atlantic Canada had already quadrupled by 1980 to $4 billion. Corbella of the Calgary Sun quotes a veteran Alberta oilman recalling that "The federal government started taking the lion's share" of the province's oil and gas revenues. Not true. ANEP renegotiated more to then-premier Peter Lougheed's liking and signed in September 1981 called for Alberta to rake in $64.3 billion over the next five years, and Ottawa would get $54.3 billion. "People forget," then-federal energy minister Marc Lalonde told the Toronto Star, "that an agreement was reached with Alberta in 1981 which Lougheed called 'good for Canada and good for Alberta.'"
A devil's brew of factors conspired to make the NEP dead on arrival even before the renegotiated deal was signed (oil prices had begun an eight-year slide in the spring of 1981)."What killed the industry," Lalonde now says, "is that the price of oil fell from $30 (U.S.), to $12 (U.S.), rather than rising to $60 (U.S.), as most people had anticipated." Historian Gray adds that, "The period of supply glut in the 1980s would have reduced industry activity regardless of the NEP; in fact, drilling continued to fall after the NEP was dead." And the Texas oil patch was equally devastated with no assist from Ottawa.
[Editor's Note: This is a very short excerpt from a much longer piece. Please see the Toronto Star for more.]
In speeches across North America in recent years to attract investment dollars to his province, Alberta Premier Ralph Klein sometimes includes a potted history of the Canadian oil patch.
In Klein's telling, Alberta fought Ottawa tooth and nail in the 1930s for control of its resource wealth, then went cap in hand to foreigners to build its oil and gas industry, since easterners showed no interest in financing the fledgling Calgary oil patch. Come the Organization of the Petroleum Exporting Countries' oil shocks of the 1970s, Ottawa suddenly took an interest in Alberta's energy windfall by expropriating it with a series of arbitrary measures culminating in the loathed National Energy Program, introduced 25 years ago yesterday.
The NEP was the culmination of a decade of "energy wars" between Alberta and Ottawa over energy revenue sharing. It was a short-lived set of taxes, rebates, subsidies and expropriation provisions that were designed to give Ottawa a larger share of the windfall of the energy-producing provinces; to Canadianize a foreign-controlled oil patch; and to promote national self-sufficiency in energy through conservation measures and incentives to spur exploration on federal lands in the remote Far North and offshore regions.
The NEP alone, Klein told a business audience in Halifax in 2001, "drained 50,000 jobs and $100 billion in revenue out of the province." It was a searing indictment, and Alberta nationalists give voice to it today with no less vehemence than they did a quarter-century ago.
"As signs out of Ottawa make it look like NEP II might be coming down the pipe," Calgary Sun editor Licia Corbella wrote Thursday, without citing evidence of renewed Ottawa predations, "many Albertans are wondering why this province stays in Canada."
...
Poorly conceived though it was, the NEP was driven by real enough fears outside Alberta that 10 per cent of the country's population was getting richer while the rest of Canada would soon be impoverished by oil prices expected to hit $60 (U.S.) to $100 per barrel by the end of the century, if not sooner. The tangible proof of Ottawa's quandary was that Alberta's nest-egg Heritage Fund was projected to exceed $150 billion in assets by the mid-1980s, while Ottawa's outlays for subsidizing energy prices in Central and Atlantic Canada had already quadrupled by 1980 to $4 billion. Corbella of the Calgary Sun quotes a veteran Alberta oilman recalling that "The federal government started taking the lion's share" of the province's oil and gas revenues. Not true. ANEP renegotiated more to then-premier Peter Lougheed's liking and signed in September 1981 called for Alberta to rake in $64.3 billion over the next five years, and Ottawa would get $54.3 billion. "People forget," then-federal energy minister Marc Lalonde told the Toronto Star, "that an agreement was reached with Alberta in 1981 which Lougheed called 'good for Canada and good for Alberta.'"
A devil's brew of factors conspired to make the NEP dead on arrival even before the renegotiated deal was signed (oil prices had begun an eight-year slide in the spring of 1981)."What killed the industry," Lalonde now says, "is that the price of oil fell from $30 (U.S.), to $12 (U.S.), rather than rising to $60 (U.S.), as most people had anticipated." Historian Gray adds that, "The period of supply glut in the 1980s would have reduced industry activity regardless of the NEP; in fact, drilling continued to fall after the NEP was dead." And the Texas oil patch was equally devastated with no assist from Ottawa.
[Editor's Note: This is a very short excerpt from a much longer piece. Please see the Toronto Star for more.]