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Troubling precedent: Can Alberta demand a "fair share" of BC's eastern exports?

Appeared in the Financial Post
Authors:
Release Date: November 27, 2013

Alberta Premier Alison Redford and B.C. Premier Christy Clark recently announced a “framework agreement” on the proposed Northern Gateway oil pipeline, removing what was seen as a serious barrier to development. The agreement is an important breakthrough, not only for Alberta and British Columbia, but for all of Canada, which benefits from oil sand production in Alberta. The sticking point that previously held up agreement was a demand by Premier Clark that BC receive some “fair share” of the royalties and revenues to be had from the pipeline in compensation for the risk that British Columbians would take on in allowing the pipeline to traverse their province. Under the new framework agreement, such compensation would ostensibly be negotiated directly between British Columbia with oil producers and shippers, rather than at the inter-provincial level.

Of course, ultimately, some of that payment will still come from Albertans. The added cost of having to bribe British Columbia into letting the oil companies move their oil to market will come off the company’s bottom line, and thus out of the wallet of share-holders, some of whom reside in Alberta but others who reside elsewhere in Canada as well, via stock ownership, mutual fund, and pension plan holdings in energy companies.

Premier Clark’s insistence that somehow, British Columbia deserves special compensation for allowing Alberta’s oil to pass-through the province on the way to export markets sets a troubling precedent. As Premier Redford noted in the past, such demands fly in the face of reason and history. “It's not how Canada has worked. It's not how Canada has succeeded, and I'm disappointed to hear the comments,” was the way she characterized the request for revenue-sharing. Saskatchewan Premier Brad Wall made similar observations, saying “This is the thin edge of a very big wedge," also saying that B.C.'s demands for more pipeline revenue would set a “troubling precedent.” Wall continued to tell reporters that "You can't just say look we only want to do this in the case of bitumen. What about the rail transport of other minerals? Or perhaps ... potentially dangerous chemicals that are manufactured in other parts of Canada and shipped across?"

This latter point of Premier Wall’s deserves some attention, because goods don’t flow in only one direction. It turns out that a great deal of British Columbia’s trade revenues come from the delivery of goods and services to provinces east of Alberta – and one assumes most of those exports went through Alberta by truck and train. These are both modes of transport that, as Lac-Megantic and the recent derailment west of Edmonton show, pose their own risks to people and the environment.

According to BC Stats, BC earned $37 billion in inter-provincial trade in 2012, much of which, one presumes passed through Alberta to points east. By comparison, let’s assume that the Northern Gateway project carries its full volume of oil (525,000 barrels per day) to port, where that oil sells for say, $90 per barrel. A bit of calculation suggests that the value of that export would be worth around $17 billion per year – less than half what BC gets in return for open export pathways to points east.

Should Alberta demand compensation for the trucks and trains that carry minerals and products from British Columbia to central and eastern Canada? Should every province look at pass-through transportation and levy charges on manufacturers in other provinces? Will Quebec start imposing pass-through costs for goods moving from western provinces to the Maritimes or vice versa?

Breaking the logjam on Northern Gateway (and, one presumes, creating a template for approving other pipeline construction/expansion of the Trans Mountain pipeline) is an important step forward for Canada. It would be a better template if it didn’t set a terrible precedent for provincial “resource nationalism.” The current framework agreement sets the stage for even more “what’s in it for me” provincial politicking when it comes time to upgrade infrastructure such as highways, and electrical transmission lines that benefit all Canadians to one extent or another, but which on occasion pose risks to those in areas that may experience little gain. Historically, Canadians subordinated their provincial concerns to the greater good of Canada, and understood that you can’t have a great economy without great infrastructure. British Columbians should understand that they too benefit by having pass-through capability to get their goods to market, and stop holding Alberta oil over a barrel.



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