This is not the first time a Liberal government in Ottawa has decided to meddle in the oil patch. But it’s the first time it’s been done in defence of Alberta’s interests and in defiance of its own political base. That tells the world how important it considers the proposed Trans Mountain pipeline to be for Canada.
Prime Minister Justin Trudeau’s government would not have faced such a stark choice as nationalizing the Trans Mountain pipeline and assuming responsibility for its expansion had it put its cards on the table from the get-go. But its dithering in the face of the British Columbia’s obstructionist threats is what ultimately forced Finance Minister Bill Morneau’s Tuesday announcement that Ottawa will purchase the pipeline for $4.5-billion. Kinder Morgan appeared set to abandon the expansion project.
To its credit, the Trudeau government has decided to govern instead of just preach. But the political and economic risks inherent in the nationalization of a major energy infrastructure project cannot be understated. Mr. Trudeau is all-in now, not just on the Trans Mountain expansion but on increased oil sands production. This moment will define his first term as Prime Minister in the eyes of Canadian voters and the world.
The move will cost Mr. Trudeau the support of the progressive voters who backed his Liberals in 2015 in the expectation that he would put achieving Canada’s greenhouse gas-reduction targets ahead of further development of the oil sands. Mr. Trudeau may still hope both can be realized. That is the grand bargain he aimed to seal between environmentalists and the oil industry with the implementation of a national carbon tax. But for the activists for whom Alberta’s bitumen must stay in the ground, the nationalization of Trans Mountain is a betrayal that will haunt Mr. Trudeau forever.
Mr. Morneau, however, knows the numbers and how critical Alberta’s oil sands are to the sustainability of federal finances. Reducing the discount on Alberta crude owing to transportation bottlenecks and Canada’s dependence on the U.S. market is key to ensuring Alberta’s economy can continue to punch above its weight while other parts of the country founder. Without strong “have” provinces, it’s harder to support the have-nots.
In the early 1980s, then-prime minister Pierre Trudeau employed the opposite logic with the National Energy Program, which aimed to create a domestic oil price that would insulate oil-consuming provinces from price spikes, at Alberta’s expense. Ottawa’s finances have only grown more dependent on a thriving Alberta economy since then, depriving his son of that option.
Besides, outside of activist circles, Canada has been looking increasingly hapless at managing its own economy. No other country, not even Norway, would compromise its economic security just to look environmentally virtuous. Former U.S. president Barack Obama may have vetoed the Keystone XL pipeline to placate environmentalists, but domestic oil production and pipeline construction both surged on his watch as the shale oil boom helped propel the United States toward energy self-sufficiency.
China remains ravenous for the world’s oil and will purchase crude from even rogue regimes to satisfy its needs. Russia has all but formally joined the cartel that is the Organization of Petroleum Exporting Countries (OPEC) and is plotting with Saudi Arabia to increase production to tame the current oil-price jump caused by uncertainty over the fate of Iranian sanctions and the downward spiral of Venezuela. Price spikes are in no one’s interest, as they threaten to thrust oil-consuming countries into a recession.
Against this backdrop, Canada has looked amateurish in the defence of its own economic interests. The Trudeau government took a step on Tuesday toward changing that impression. But it will need to show more business sense than it has to date if it is to successfully manage the construction of a new pipeline. Mr. Morneau insisted that Ottawa has no intention of becoming a long-term owner of Trans Mountain. But it is unlikely that his government will be in office long enough to reap the windfall of an eventual privatization, provided the pipeline is built and lives up to its economic billing.
“At the appropriate time, Canada will work with investors to transfer the project and related assets to a new owner or owners, in a way that ensures the project’s construction and operation will proceed in a manner that protects the public interest,” the government said on Tuesday. Unfortunately for Mr. Trudeau, the “appropriate time” will not likely arrive on his watch.
Still, the Trudeau government only has itself to blame for finding itself in this situation. It owns Trans Mountain, now, and not just literally.