Oil embargo: Alberta’s Preserving Canada’s Economic Prosperity Act

As part of Alberta’s dispute with British Columbia over the expansion of Kinder Morgan’s Trans Mountain Pipeline Expansion Project, Alberta has introduced into the legislature Bill 12: Preserving Canada’s Economic Prosperity Act. Bill 12’s purpose is to give Alberta the power to control the export of any quantity of crude oil (other than crude bitumen), natural gas (including gas products and field condensate) or refined fuels (gasoline, diesel, aviation fuel and locomotive fuel) from Alberta to any other province or state.

If enacted and brought into force, the minister of energy may by order designate that any person or class of persons must obtain an export licence in order to export oil, natural gas or refined fuels. If export licences are required, Alberta could then presumably refuse to issue them to persons intending to export crude oil, natural gas or refined fuels to B.C. or issue licences with terms and conditions limiting the ability to move such commodities to B.C. Any such restrictions will inevitably increase fuel prices in B.C.

Bill 12 will not require an export licence for exporting crude bitumen or diluted bitumen. However, if Alberta was to restrict the export of crude oil or refined fuels on the existing Trans Mountain Pipeline this could free up capacity on that pipeline for transporting additional quantities of diluted bitumen.

Bill 12 also authorizes the minister to issue orders to operators of provincially licensed pipelines, provincial railways and provincially registered trucking companies to stop transporting crude oil, natural gas or refined fuels if the minister determines a person is not complying with the legislation or the terms or conditions of an export licence. The authority to order a pipeline operator to stop shipments is limited to provincial pipelines and would not affect pipelines regulated by the National Energy Board such as the existing Trans Mountain Pipeline.

Public interest of Albertans

Bill 12 proposes that before the minister makes an order requiring a person or class of persons to obtain an export licence the minister must determine whether it is in the public interest of Alberta to do so having regard to whether adequate pipeline capacity exists to maximize the return on crude oil and diluted bitumen produced in Alberta, whether adequate supplies and reserves of natural gas, crude oil and refined fuels will be available for Alberta’s present and future needs and any other matters considered relevant by the minister.

Maximized returns

The requirement for the minister to consider whether adequate pipeline capacity exists to maximize the return on crude oil and diluted bitumen produced in Alberta is a reference to Alberta’s oil currently selling at a significant discount to world prices in part due to insufficient pipeline capacity to transport Alberta production to Canadian tidewater where it will have a better ability to attract a higher price. The Trans Mountain Pipeline Expansion Project would enable greater volumes of Alberta oil to obtain a higher price, and thereby increase Alberta’s royalties, which are partially determined by prices. B.C.’s continuing efforts to stop the Trans Mountain Pipeline Expansion Project contribute to keeping the prices for Alberta’s exported oil below the world price.

Present and future needs

Consideration of the adequacy of supplies and reserves of natural gas and crude oil for Alberta’s present and future needs is not new. In 1949, Alberta’s Premier Manning brought into force the Gas Resources Preservation Act that required exporters of natural gas to obtain a provincial permit.

At the time, Canada’s gas transmission companies were being federally incorporated in Ottawa and their promoters were planning on constructing large natural gas pipelines to transport gas to public utilities and consumers in Eastern Canada and the United States. At the same time some Albertans feared there would be insufficient supplies to fuel Alberta’s cities and industries. A policy was put in place at that time that at least a 30-year supply of gas must be left for Alberta’s present and future needs before a provincial export permit would be issued. Over the years this has been reduced and following deregulation of gas markets the so-called surplus test was removed. Presently, short-term exports of natural gas (i.e., less than two years) are exempted from any export permitting requirement.

As Alberta currently has approximately 24.4 trillion cubic feet of natural gas in established reserves and an estimated165 billionbarrels of oil, it seems unlikely the minister can realistically restrict exports on the basis there are insufficient supplies for Alberta’s future needs.

Order to cease transporting impact on commercial arrangements

Bill 12 also provides that any ministerial order to the operator of a provincial pipeline, railway or trucking operation to cease transporting crude oil, natural gas or refined fuels does not frustrate or otherwise render ineffective any transportation agreements to which the operator is bound. How this provision, if enacted and utilized, will impact such transportation contracts remains to be seen.

An uncertain future

The constitutional validity of Bill 12, should it be made into law, and the exercise of any export licensing powers by the minister, is uncertain.

Further legal uncertainty exists for those involved in the oil and gas supply chain who presently export oil, natural gas or refined fuels out of Alberta through a complex chain of production, processing, storage, transportation and purchase and sale contracts.

Crown immunity

Bill 12 also includes a provision that purports to give the Crown immunity from any lawsuit or proceeding for anything done or omitted to be done in good faith by the Crown under the Act.