The Full Alberta Oil Interview with Saskatchewan Premier Brad Wall
Premier Wall thinks Canadians should be proud of their energy sector – and he’s not afraid to talk about it
When you get this country’s provincial and territorial leaders together in one place for an extended period of time, something interesting is bound to happen. That’s doubly true when the key matter being discussed is a national energy strategy, one that touches on everything from pipeline projects to climate change. At the Council of the Federation meetings in St. John’s, Newfoundland, this past June, Saskatchewan Premier Brad Wall didn’t disappoint. After watching the premiers of Alberta and Quebec publicly float what amounted to a quid pro quo, one in which stronger environmental regulations in Alberta would be the cost of support for the Energy East pipeline in Quebec, he spoke out. “Maybe we need to have equalization payments start flowing through a pipeline to finally get one approved through Central Canada,” he told reporters. We just had to follow up on that – and so we did, in early August. In this exclusive interview with Alberta Oil editor Max Fawcett, the Premier of Saskatchewan (and the energy sector’s newest hero) discusses his views on the state of federalism, the prospects of developing his province’s own oil sands reserves and why Canadians should be proud of Alberta’s.
AO: You’ve been an outspoken critic of the way other Premiers are politicizing energy infrastructure projects. Why was it important for you to speak out about that?
BW: I’m not sure if it’s a criticism of other premiers specifically, but I just have real concerns that provinces themselves are looking for ways to leverage domestic politics to their advantage as much as they might be considering issues attendant to a pipeline, whether it’s matters of energy or matters of the environment. And that’s a dangerous proposition for a country that has the third largest oil reserves on the planet, doesn’t get the world price for any of the crude, has basically one customer in the United States and can’t get its product to tidewater. It’s dangerous to have subnational governments with the power, if only a notional and informal power, to prevent us from doing something that in any other nation would just be common sense. There needs to be a focus on environmental issues, and we always need to do better by the environment, not just in terms of the development of our energy resource but its transportation. But we ought to also have a much bolder vision for the country’s energy resources in terms of being a world player, and that means getting it to tidewater.
The other issue for us in western Canada is simply this: in 2015, Saskatchewan taxpayers will pay roughly half a billion dollars into the federal equalization program. And we’re happy to do it – we were a recipient for many years, and we’re grateful for that. Albertans will pay about $2 billion into that same program, if you use a population basis for the calculation. So that’s $2.5 billion out of the two provinces that produce the most oil into a program. We would like to be able to maximize our own revenues from that resource, which will of course help taxpayers here pay into those federal transfer initiatives. One way do to that is to get a better price, and one way to get a better price is to get oil to tidewater and stop taking the discount. We do not get top dollar for our oil, and we haven’t for a long time. And it’s not governments that own the resource, it’s the people of the respective provinces – and they have been selling it at a discount to the one customer we have for a long time, because West Texas has been structurally lower than Brent.
AO: How do western Canadians put that issue on the table without it seeming or sounding like we’re using it as a threat?
BW: You’re right – it’s a very difficult issue to raise. It’s difficult for Saskatchewan to raise because we’ve benefited mightily from the program for years. Now, I would argue that we should have been pursuing different policies here historically. With all of our resources it seems strange that this province, given how it’s currently calculated, was ever eligible. And we don’t ever want to go back. Taxpayers here are happy that they live in a province that can contribute back to the program, and we don’t want to seem ungrateful. But the program has continued evolved since we became ineligible – since we gained our “have” province status. We have to talk about this. People are a little bit uncomfortable, but we have to talk about it.
Now, we don’t control it – it’s a federal government program, and this year it’s $17 billion. Quebec will get about $9 billion of that, and Ontario will get about $2 billion even though those two economies benefit disproportionately from a low dollar – a low dollar that comes from low oil prices. And consider this as well: the lag in the program, and the calculation of the th erpogram. The current formula has about a three to five year lag in terms of oil prices really effecting the payouts, so for three to five years Albertans – who contribute $2 billion to this program, and Saskatchewan residents who half a billion every year – will continue to pay in even though oil’s at $46 today. That’s a deficiency.
Consider that hydro resources, which are increasingly valuable in the pursuit of this post-carbon economy, are not calculated. Provinces that have huge hydro resources don’t have to include them in the formula. So we have to talk about it. It might not be that comfortable for some, but we have to talk about it. I’ve been saying here very recently that maybe it’s time we go beyond the equalization program as it is. It’s constitutionally protected, but maybe we ought to cut in half and take the other $9 billion every year and put it into the infrastructure that every province and mayor says they need. Or maybe we put half into infrastructure and half into sustainable tax reductions. Imagine what you could do for the country’s economy if you took $9 billion every year and put it into infrastructure and tax relief.
Over the last decade I think Quebec’s gotten about $80 billion in equalization – and fair enough, they’re eligible. But it’s been disproportionately paid for on a per-capita basis by provinces with resources, and specifically Alberta. And now when Alberta (and Saskatchewan) are facing big challenges in their budget because of the price of oil, they have the happy prospect of three to five years of the same payments into the program without a lot of benefit – and without pipelines being approved. And I think that’s the source of the frustration. The solution for that is getting the best value for the oil, and Energy East would help do that. Gateway would help do that. Keystone would help do that. But in every situation you have provinces saying ‘no, we’re not interested.’ I think there should be a frustration on the part of western Canadians.
And I don’t buy this argument that I’ve heard from others, including some in St. John’s, that we’ll get more flies with honey than vinegar. I had a reporter say ‘being this blunt, is this going to work? Won’t we get more flies with honey than with vinegar?’ But my point to that reporter was that we haven’t gotten any flies. I mean, we got the National Energy Program because we used honey. We haven’t gotten any pipelines approved because we’ve been nice. And now, this notion that if you in western Canada would just change your environmental policies so they’d be more palatable to other Canadians in other parts of the country then we’d have greater license to not object to your pipeline? That’s. Just. Wrong. And it’s ridiculous. If we were to say to Ontario or Quebec in terms of their exports west, ‘you know, if you would just change your domestic policies in this area we’d be more inclined to want to allow those rail lines to go through our provinces and carry your goods,” Ontario and Quebec would be suitably upset. And really, what’s the difference, based on what was happening in the talks between Alberta and Quebec in advance of the Premiers meeting.”
AO: It sounds to me like what we need is a robust pan-Canadian strategy. Does the one that was recently struck in Newfoundland go far enough, in your opinion, in highlighting the importance of the energy sector to all Canadians?
BW: I think it helps. It could have gone further, but it helps. We have to come to some sort of agreement when we’re at the table, and there were many different and disparate interests at the table. I wanted to have the document include at least a mention that the Canadian Energy Strategy should aspire to the country never having to import oil. Those words don’t appear in there. There’s a real reluctance to even use the words ‘oil and gas’ – not just in the energy strategy but in the country, increasingly. It’s like we’ve got our head down and we’re kicking the dirt and we’re a little bit embarrassed that we have this resource. And we ought not to be. Any country in the world that has the scale of this resource that we have, you will not find one that’s even close in terms of trying to do better by the environment and trying to make this industry as sustainable as possible. Better that Canada have this great resource, frankly, than a country with a questionable human rights and environmental record. That’s the other concern I have about the Canadian Energy Strategy – if you count them, I think there’s something like 37 or so references to post-carbon or climate change. I think oil and gas gets mentioned three or four times, in a country where we have the third largest oil resource in the world.
So, the Canadian Energy Strategy is fine. Is it going to help us get some pipelines approved? I sure hope so, and especially Energy East. I honestly thought, when it was proposed by the company, that it would be almost without controversy because it is a conversion, because it replaces foreign oil and because it gives us a chance to add value to the product in parts of the country that need jobs. And yet now we have a federal leader, in Thomas Mulcair, who’s equivocating on it. We have central Canadian provinces posturing seemingly against it, and certainly wanting to extract something for it. And I hope the energy strategy helps overcome some of that.
AO: You’ve said that you “categorically reject” the notion that oil and gas is something we should be ashamed of. How can we encourage Canadians to take pride in the energy sector? It seems sort of quintessentially Canadian that we’re modest and humble about this great asset, but that’s getting in the way of developing it in a meaningful way.
BW: Well, you’re right – we are modest and humble. But we also fight for things that we know are in Canadian interests. We’re not going to back down when it comes to defending the interests of the country. I’ve seen it from the oil sands and elsewhere, that we need to point out our environmental record and the good things that we’re doing. But we also need to evoke some national interest and defend the industry. Start by pointing out, in very clear ways, just how many jobs depend on this industry, and just how big it is relative to the world scale. Canadians will want to stand up for what’s clearly in their interests, and in the interests of their families and children. We have tot alk about our environmental record, which is improving all the time. But we also have to speak to the economic importance, and the great track record that Canada has as a leader in this sector.
AO: When you formed government, you resisted the temptation to tinker with royalty rates. Given that, what advice would you give to your counterpart in Alberta when it comes to their royalty structure?
BW: I would give no advice to any other province – I really wouldn’t. It’s a dangerous thing. Each province and each premier has to do what they think they need to do, and they have a mandate. But I can speak to our view of things back in 2007. What we wanted to do was ensure that we were as competitive as possible, and competitiveness does not stop at royalties or taxes. It also goes to stability, and we wanted to make sure we were offering that – and by the way, that’s still our principle when it comes to the oil and gas business. We want them to know that they can expect stability in the province of Saskatchewan. We also want the corporate side of the oil and gas sector to know that we have some pretty significant new growth tax incentives on a company’s income tax if they’ll create new corporate jobs in the province, whether they’re head office or just corporate office. We’d like some of that as well, so we’ve provided a low tax environment for those kinds of jobs – and by the way, that started well before the Alberta election, so it’s not a product of what happened there.
AO: Is there merit to the idea of harmonizing the royalty regimes in western Canada so that the jurisdictions can work collaboratively rather than competitively?
BW: There might be an advantage, or a benefit, to that. But we’re not moving up. This is very competitive, and we have North Dakota in the Bakken formation that we share – grudgingly – with them. It’s a global industry, especially now and especially with what fracking has done in the United States. We can’t just look at it as a Saskatchewan and Alberta and BC thing. We have to look at it globally, and we’re working hard to be a great place to invest – period.
AO: Your province’s oil sands reserves are still something of a mystery – one that industry has yet to solve. Given that, and given the challenging commodity environment, why should it take another look at them?
BW: Obviously, it’s going to be driven a lot by price, and we know the geology has been challenging. It’s too deep for mining (although I don’t think we’d be that interested in that part of it right now anyway) and I’m not sure that the overburden is there over most of it for effective SAGD. But the industry has been working up there, and we’re grateful that Cenovus is the player. I guess I’d simply say to the industry that as the price recovers we think there’s great potential there. I think we have a fairly competitive oil-sands related royalty structure. But if there’s more that needs to be done there in terms of attracting new investment, I think we’d look at that as well.
AO: Saskatchewan remains committed to carbon capture and storage technology. How come?
BW: Forty per cent of our electricity comes from coal, so when you start to look at the numbers on replacing all that coal – even with natural gas a lower price, but with longer-term price risk – we decided that we needed to look at ways to maintain coal as part of the fleet and still be in line with environmental targets that we have and that the federal government was coming with. We had some indication from our universities that there was technology that could lead to ‘clean coal’ and prove it’s not an oxymoron, and we got federal support early on in our mandate to the tune of about a quarter of a billion dollars. We’ve now completed a $1.4 billion CCS coal facility on an existing 100 MW plant, the Saskatchewan Boundary Dam Unit 3.
Part of the model here is the sale of CO2. If CO2 is a terrible thing from a climate change standpoint, wouldn’t it be great if we could get money for it before it gets stored in the ground? So we sell the CO2 offtake to industry, which uses it for enhanced oil recovery. And here’s the good news – this is about four times cleaner than natural gas. It’s been operating since last fall, and it’s meeting all of the targets – by the end of the year it will be capturing more than 90 per cent of CO2, a million tonnes a year, so it’s cleaner than gas and ensures that coal is in the game.
This has been my point at the Premiers’ table, and it’s not always been well-received. Canada is responsible for about three per cent of the world’s emissions, roughly, in any given year, and the oil sands is some percentage of that. And yet, we’re prepared to look at everything in Canada – some provinces are doing cap and trade or carbon taxes, while we’re investing more per capita on the technology side – when there’s 550 coal plants on the books for India, a new 600 MW coal plant being built every 13 days in China, Japan is building new coal to replace nuclear and Germany is turning coal back on.
My point at that table has been, ‘yes, Canada needs to do its part, and yes, we need to do our part. But what if we focused all of these efforts together on technology – on actual solutions to the problem in areas where the emissions are huge and far more contributory to worldwide CO2 emissions? What if we cleaned up coal, for example, and this technology became efficient and places like India and China could access it. And by the way? There’s growing interest in that. We have a global consortium that’s looking very carefully at our technology because it’s working. It comes in more costly at the start, but with every generation of technology the price goes down.
We can talk all we want about cap and trade or carbon taxes in Canada, but we’re three per cent of global emissions. So why don’t we, as Canadians, decide to lead the world and develop technologies that can be applied in places like China and India and Indonesia and Europe where coal is being turned on right now? Imagine what we could achieve as Canadians if we were to focus, in a laser-like way, on technological solutions, rather than what I think has been a marked focus on the policy and the politics of the environment? If we can pioneer technology that can clean up coal to the extent that it’s cleaner than natural gas in places like China and India, that’s way, way more important than charging a levy to heavy emitters in the province of Saskatchewan that affects one-tenth of one per cent of worldwide emissions. And that’s why we’re going to continue with CCS.
AO: Should Canadians be proud of the oil sands?
BW: Absolutely, they should be – absolutely. This is an amazing resource, and it’s in the hands of people who do care about the environment. It’s in the hands of companies that want to make sure that pipelining oil is safer, and who have invested hundreds of millions of dollars in reclamation such that if you took Darryl Hannah or Robert Redford, blindfolded them and put them in the habitat that used to be an oil sands mining operation they wouldn’t have a clue. We should be proud of this resource, because it’s in the hands of a country that has an imperfect but solid record on the environment and an imperfect but world-leading record on human rights. We use our oil sands and the revenue from them and the energy sector in general to fund quality healthcare, to fund education and to use in transfer payments across the country. That’s what’s paid for by the development of the oil sands – we pay for a quality of life for our citizens right across the country.
It also has the salutary benefit of directly employing thousands of Canadians, and indirectly employing hundreds of thousands in sectors right across the country. What nation on earth wouldn’t aspire to have a resource like that? And if they did, they would be proud of it. They’d always be looking for ways to make it better, and we should be too – whether it’s ways to reduce emissions or do right by the habitat and the environment. But we should be proud of the fact that we have this resource that has employed Canadians from coast to coast to coast.
AO: Can we get a new pipeline built in this country that reaches tidewater? And if we can’t, should the Prime Minister – whoever that might be – use the declaratory power to make it happen?
BW: I think we can, and I don’t think we’re going to have to take that step. I think Energy East is the first one, and I’m still hopeful about that project. I think the Energy Strategy we struck does help in seeing that thing through to fruition. But this federal election is becoming pretty important, because where we had most of the leaders on board with Energy East at least now we’re hearing some – like [NDP leader Thomas] Mulcair recently – backing away from that. The federal election will be important. But I’m hopeful. We start with Energy East and we go from there.