An opportunity to give British Columbia its fair share

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Appeared in the Financial Post and Vancouver Sun

Following the U.S. government’s delay in approving the much-hyped Keystone XL pipeline, many pundits turned their attention to the possibility of a new pipeline from the oilsands to BC’s west coast that would allow Canada to ship larger amounts of oil to world markets, which currently offer a premium price relative to the U.S. Midwest.

Securing higher prices for oilsands oil would bring tremendous economic benefits to Canada. However, as is often the case in a federalist country, domestic provincial considerations have complicated the viability of the proposed Northern Gateway pipeline project, which would bring oil from northern Alberta to Kitimat on the BC coast.

One major barrier to the development of the Northern Gateway pipeline as well as a second pipeline from Alberta to Vancouver is the parochial interests of BC’s premier, who has demanded a fair share of the benefits from the pipeline. Constitutionally the premier has little to no ability to block the pipeline. However, politically she has a big microphone and is using it, particularly as she is facing re-election next year with dim prospects and an electorate and opposition party generally opposed to the pipelines.

To date, the federal government has remained relatively silent. However, the stated interests of the feds for Canada to become an energy superpower may coincide with a possible solution to the fair share problem.

Since 1972, there has been a federal moratorium on offshore oil and gas activity in BC. The moratorium is not legislated but rather informal in that the federal government simply refuses to issue permits for offshore activity. The moratorium is so strict that it prevents basic scientific testing such as seismic surveys.

The potential size of offshore oil and gas in BC is substantial. A probabilistic assessment of BC’s offshore resource potential by the Geological Survey of Canada roughly suggests 9.8 billion barrels of oil and 43.4 trillion cubic feet of natural gas. In regards to oil, this endowment is similar to estimates for the coastal plain of the Arctic National Wildlife Refuge (ANWR) in Alaska. However, a 2004 report by the Royal Society of Canada indicates that many of the environmental questions that need to be answered prior to offshore drilling cannot be answered without lifting the moratorium. In other words, even the most basic steps necessary to assess the actual size and viability of the offshore resources are prevented by the moratorium.

Herein lies the opportunity. In exchange for the BC government’s support of the Northern Gateway pipeline (and perhaps others), the federal government could lift this informal moratorium so that further information about the extent of BC’s offshore resources can be determined. Developing these resources will likely produce substantial economic benefits to BC.

As a sign of the potential benefits, consider Newfoundland and Labrador. They have averaged more than $1 billion in annual industrial benefits from the offshore oil sector between 1990 and 2009. Furthermore, the offshore oil sector in Newfoundland and Labrador generated $43 billion in GDP between 1997 and 2007; around 25 per cent of the province’s GDP over that period. An analysis commissioned by the BC government estimates that if BC were to proceed with offshore oil development, the majority of the profits from the sale of oil will flow to provincial and federal government coffers in the form of royalty payments and income taxes.

Such development will not jeopardize BC’s environment if proper precautions and interventions are established. For example, historical spill and oil production data show that Newfoundland and Labrador as well as the United Kingdom have had much safer experiences with offshore drilling than the U.S. Gulf of Mexico.  Despite producing more than one billion barrels of oil, there has only been a single oil spill greater than 50 barrels since offshore oil production began in Newfoundland and Labrador. Furthermore, the number of oil spills from maritime traffic in Canadian waters has decreased substantially since the 1980s, and none have occurred in the past decade.

Learning from the experiences of Newfoundland and Labrador, the U.K., Norway, and the U.S., the government of British Columbia, in partnership with the federal government, can design and implement a world-class regulatory regime for offshore exploration and development. Having waited to develop its offshore fossil fuel resources leaves British Columbia in the enviable position of learning from regulatory improvements and mistakes in other jurisdictions. A well-funded and well-designed regulatory regime paired with appropriate liability laws can help mitigate the risks involved with offshore oil activity.

Lifting the moratorium on offshore oil and gas activity on Canada’s west coast will contribute to the federal government’s goal of making Canada an energy superpower. And at the same time, it has the potential to resolve inter-provincial in-fighting over pipelines by ensuring British Columbia is a larger beneficiary of Canada’s energy renaissance.

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