Last week, the Northern Gateway project was given a tentative green light from a federal review panel with a whopping 209 conditions. The federal cabinet has six months to decide whether it will accept the recommendations, but it has another hurdle to consider, this one constructed by Premier Christy Clark. Somebody, somewhere, is supposed to cough up British Columbia's "fair share" of the benefits.
There is a very large pie that Ottawa, Alberta and B.C. can expect to share if the pipeline is built. When Ms. Clark laid out her "five conditions" for supporting heavy-oil projects across British Columbia, she said the province's share under the current tax system isn't big enough. For 18 months now, this demand has sat without anyone stepping up and offering a solution.
According to B.C., the Northern Gateway project is expected to generate a windfall of $81-billion in provincial and federal government taxation over a 30-year period. Of that total, $36-billion goes to Ottawa and $32-billion to Alberta. B.C. would land $6.7-billion – only slightly ahead of Saskatchewan's $4-billion.
Ms. Clark has said 8 per cent isn't a big enough slice. What the B.C. government hasn't said is what would be enough.
Alberta has already made it abundantly clear that it is not giving up any of its royalties. The two provinces are in negotiations now on a framework of how to meet the five conditions, and a report is expected to be made public in January. But all Alberta has agreed to on the subject of benefit sharing is that B.C. is free to go ask industry or Ottawa to address its demands. Both Enbridge and Kinder Morgan, which is proposing another heavy-oil pipeline across B.C., have indicated they are willing to talk about how to meet all of B.C.'s five conditions.
Industry may argue that B.C. is understating the benefits it enjoys from the development of Alberta's oil sands, but it is unlikely the B.C. government, having invested so much political capital in demanding more money, could get by with simply restating the existing benefits.
It is possible Enbridge would accept some kind of toll on its pipeline – the value of getting that landlocked oil to new markets may make that worthwhile. The B.C. government and Enbridge have held talks since the May, 2013, election, but the company has not proposed a model.
However, the rest of the oil and gas industry has a stake in what happens here: Would a new pipeline heading east face a line of tolls across the country?
That's why industry wants Ottawa to step in and facilitate on the Premier's fifth condition.
And here is where things get sticky. Ottawa has refused to take a position on how to resolve B.C.'s demands. The federal government wants the pipelines built, having declared them to be in the national interest.
And, with its panel report concluding that the benefits of Northern Gateway outweigh the risks, the federal cabinet could approve the pipeline and enjoy a good scrap with its opponents on Parliament Hill over resource development.
It might not be a bad wedge issue heading into the 2015 federal election, but trying to push the pipeline over the objections of the B.C. government could be explosive. The B.C. Liberals are a fragile coalition of federal Liberals and Conservatives and Ms. Clark has tried to maintain reasonable relations with Ottawa. However, the Premier cannot back down now. She has wedded the pipeline issue to extracting more money for B.C.
Already, Ontario is watching the exchange closely. It, too, is wondering why it would support new oil pipeline proposals without some say on the economic and environmental fronts.
If B.C. secures new revenues from Alberta's oil, imagine what happens to a project like TransCanada's Energy East plan – which would convert an existing Alberta-to-Quebec gas pipe to oil, and then extend it to Saint John, N.B. Which is reason enough for Natural Resources Minister Joe Oliver to get involved, before he ends up with half of the premiers in the country lining up asking for a "me too" clause.