New law would allow Alberta to restrict flow of oil and gas

CALGARY — Alberta has granted sweeping new powers to its energy minister, including the ability to cut off all exports of oil, natural gas and refined fuels, as the province escalates its trade war with British Columbia.

Introduced Monday, Bill 12 or Preserving Canada’s Economic Prosperity Act, is aimed at the B.C. government, which has obstructed the construction of Kinder Morgan Inc.’s $7.4-billion Trans Mountain pipeline expansion to the West Coast. But the powers in the new legislation go far beyond restricting oil flowing through the Trans Mountain system.

When in force, the law would require companies to obtain a licence from the minister to send crude oil, natural gas or refined fuels such as gasoline out of the province in any direction and on any form of transportation, including pipelines, railway cars or trucks.

“The powers in this legislation are not powers that Alberta wants to use, but we will do so if it means long-term benefit for the industry, for Alberta, and for Canada,” Alberta Energy Minister Marg McCuaig-Boyd said.

Currently, only natural gas producers need an export licence from the Alberta Energy Regulator to send their gas out of province, but this law will extend that requirement to oil and refined fuel producers and give license-granting authority to the energy minister.

The law is broad enough that the minister can choose whether to cut off all outgoing petroleum products or single out specific pipelines or companies by issuing a requirement for those sending oil or gas or diesel to B.C. to apply for a licence, which the minister could then deny.

Companies that break the law would pay up to $10 million per day and individuals exporting without a licence would be hit with fines of up to $1 million per day.

“We are confident that it will withstand legal challenge,” Alberta Premier Rachel Notley said of the law, while acknowledging there would likely be a legal challenge. She said Section 92 of the Constitution gives provinces power over their natural resources.

Before it is challenged, however, the law provides a key option to strategically inflate gasoline prices in B.C. without hurting Albertan oil producers.

Notley said the province was considering restricting shipments of refined products through the existing Trans Mountain pipeline, so that only diluted bitumen flowed to Burnaby, B.C. via pipeline. Currently the pipeline transports both crude oil and refined fuels. This would force gasoline, diesel and jet fuel shipments to move to B.C. on railway cars, escalating costs for B.C. drivers, while allowing Albertan oil producers to export their product.

Currently, Alberta ships 44,000 barrels of gasoline and diesel to B.C. through the Trans Mountain pipeline every day, a little more than half of the total 80,000 bpd of refined products shipped to B.C.

Notley said the government met with oil companies on Friday to ensure there would be “no surprises” as the province seeks to punish B.C. for its opposition to the Trans Mountain project but minimize the collateral damage to its own industry.

“They’re a bit nervous about it, but they also know that we’re at a turning point,” Notley said of the energy industry, which is keen to send more of their product to Asian markets through West Coast ports as other export pipelines are full.

Canadian oil producers have been seeking access to markets outside of the U.S. for years, but have seen multiple oil export pipeline projects — such as Enbridge Inc.’s Northern Gateway and TransCanada Corp.’s Energy East pipelines — be rejected or cancelled.

“While regrettable, this legislation is necessary in the circumstances to continue applying pressure to British Columbia,” said Gary Leach, president of the Explorers and Producers Association of Canada. “We’re supportive from the perspective that we need this pipeline impasse resolved.”

He said he expects the province will use a “deft hand” to try to minimize the collateral damage to the local energy industry. 

Many in the energy industry are concerned the Trans Mountain expansion is facing an uncertain fate after Steve Kean, CEO of Kinder Morgan, said last week the company would suspend all non-essential spending on the project until Ottawa intervenes to provide a clear direction on how the project will be built without further delays.

Kean also gave an end-of-May deadline for resolving the situation.

Both Notley and Prime Minister Justin Trudeau have announced they will provide Kinder Morgan with financial assurances to offset potential losses from B.C.’s continued opposition in a move that has stirred up controversy on both sides of the debate.

“The larger issue is the crisis in confidence that investors cannot rely on the rule of law in Canada for investment of their capital, especially if the government must resort to taking a financial position in the project to ensure it proceeds,” Petroleum Services Association of Canada president Tom Whalen said in a release Monday.

Burnaby Mayor Derek Corrigan, who has consistently opposed the pipeline, said plans for “investing in the project with taxpayer dollars to mitigate Kinder Morgan’s risk” are “entirely unacceptable.”

Notley, Trudeau and B.C. Premier John Horgan met in Ottawa on Sunday in an attempt to resolve the dispute without success.

Horgan said Sunday he’s looking to address “gaps” in the environmental protection plan for the West Coast and that he will continue with his government’s plan to test whether it can restrict the import of diluted bitumen in a court reference case.

• Email: gmorgan@nationalpost.com | Twitter: geoffreymorgan