Ottawa talks tough on offshore drilling

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The Canadian government is preparing a hard-line stand against the oil industry, insisting that offshore drilling will not go ahead without costly safety measures to limit mass oil spills like the one spreading in the Gulf of Mexico.

Environment Minister Jim Prentice said the situation in the Gulf of Mexico has underlined for Ottawa the importance of maintaining environmental safeguards for offshore drilling rather than accepting the industry's arguments in recent months that it should back off.

The oil sector wants the government to ease regulations on offshore drilling in the North, in particular those that require relief wells to be drilled within months of constructing a primary well. Relief wells are used to contain an oil leak by taking pressure off the primary well so it can be capped after a rupture.

"I think it's fair to say, based on what we've seen, that the ultimate safety check or fail-safe in the case of a well that is out of control is the ability to drill a relief well," Mr. Prentice said in a telephone interview from Bonn, Germany, where he was attending a meeting on climate change.

As the massive oil spill at BP plc's facility off the southern U.S. coast spews thousands of barrels of crude into the Gulf of Mexico, crews have been racing to drill a relief well to fight the growing slick.

But as the oil sector prepares to debate the merits of such measures with the federal energy regulator in Canada, the industry is growing increasingly concerned that the U.S. spill could lead to a policy overreaction.

The sector is concerned about potentially punitive new regulations that could restrict the ability of companies to explore in the North and off the East Coast.

"Don't be too quick to respond, and don't be too restrictive. That's a concern for the industry," said David Pryce, vice-president of operations at the Canadian Association of Petroleum Producers in Calgary.

"The fact that there is this concern, and there are a lot of people talking about could it happen here, the [concerns]are do we get a response that's beyond what's needed here."

Oil analyst Ian Doig said the industry has a reason to be worried. Political concerns over the prospect of major spill in Canadian waters will cast a pall over key areas of oil exploration -- the Beaufort Sea in the North, and off the east coast. That could delay future drilling permits, he said.

"It doesn't do any good for anybody's time schedule," Mr. Doig said.

Mr. Prentice suggested the spill in the Gulf has reinforced the need for the backup wells, and the debate about whether to remove the requirement to drill them immediately in the North should not proceed.

"That would seem to me to be sound policy based on what we are seeing in the Gulf of Mexico," Mr. Prentice said.

At issue in talks between the oil industry and the National Energy Board on relief wells in the North is whether they must be drilled during the same season as the primary exploration well.

The window for drilling in the North is only a few months because of ice conditions. However, allowing oil companies to wait a season to drill relief wells could leave a new well exposed to a potential rupture for a year or more.

Mr. Pryce at CAPP said the policy for relief wells was devised in the 1970s, and alternative technology for dealing with ruptures has advanced considerably.

But it is not clear why such technology has not limited the oil spill in the Gulf of Mexico. Mr. Pryce said the industry wants to hear the results of the investigation before passing judgment on what went wrong at the BP site.

"Obviously, since the incident occurred in the Gulf, we have said it probably makes sense to hold on any progress in the [Canadian policy]review until after we get a chance to learn what has happened," Mr. Pryce said. "As an industry, we haven't heard any details of the cause. It would be a concern if we move too quickly."

The National Energy Board said it could take months to complete the policy review, in light of the Gulf of Mexico spill.

The disaster has not only threatened U.S. President Barack Obama's plan to expand drilling off the southern U.S. coast, but also forced California Governor Arnold Schwarzenegger on Tuesday to pull support for a proposal to expand oil drilling off the coast of Santa Barbara County.

The oil-rig explosion in the Gulf on April 20 prompted the NEB to ask the hearing's participants for their opinions on the timing and scope of the inquiry.

Several companies, including BP Canada and Conoco Phillips Canada, favoured holding off until more is known about the Gulf spill.

The Sierra Club of Canada, an environmental group, has asked that the scope of the hearings be expanded and for a moratorium on drilling in the Beaufort Sea until a public debate can be held.

Technically, Mr. Prentice has no say over the matter as Environment Minister, since the recent federal budget gives responsibility for ensuring the environmental integrity of large energy projects to the National Energy Board.

However, Mr. Prentice has the backing of Prime Minister Stephen Harper on the matter, who sent a message to the NEB earlier this week in the House of Commons, saying "There are strong rules in Canada, there are rules for relief wells."

Mr. Prentice said the perspective of his department is still "relevant" when it comes to setting the parameters for offshore wells.

Mr. Harper said earlier this week that the NEB would not allow drilling unless workers and the environment can be protected. And, even though the regulatory process lies with the NEB, the federal cabinet will continue to approve all major board decisions.

The National Energy Board is expected to decide before Friday how to proceed with the hearings. But National Energy Board chief executive officer Gaetan Caron told reporters at a conference on energy regulation in Montreal that the review now will last "months, not weeks."

The NEB regulations stipulate that companies wishing to drill in the Beaufort Sea must have "contingency plans" to mitigate any foreseeable event that could compromise safety or environmental protection. They also require the companies to make "arrangements for the drilling of a relief well should such become necessary."

NDP Leader Jack Layton said there has been "extensive lobbying" of government ministers by the petroleum companies since the NEB said it would look into the need for the relief wells in the Beaufort Sea.

"They have been in high gear to remove any suggestion that they should be responsible for drilling a relief well in the same season that a spill takes place," said Mr. Layton.

Mr. Prentice, meanwhile, called U.S. Interior Secretary Ken Salazar Tuesday to offer whatever expertise and assistance might his country might need from Environment Canada.