Tuesday, November 5, 2013

Some implications of the BC/Alberta pipeline deal

After recent expectations that BC and Alberta were not going to come to an agreement on pipelines, but then suddenly they have come to a deal today.

Here are some implications that need to be considered:
Revenues:
It is clear that no part of the royalties collected by Alberta are going to go to BC.  Alberta is not standing in the way of BC collecting revenues from the companies or the Federal government.   So who will BC get the money from and how?

Directly BC can either collect from the pipeline or the oil producers.   There is no formal taxation or royalty scheme I know of that BC could introduce and legally force the companies to pay.   I suspect any payments would have to be in the form of an impact benefits agreement specifically negotiated with each company.  

The other option is to have the Federal government give up some of their revenues to BC.   I think this is highly unlikely to happen.

How much can BC realistically collect?  At 525,000 barrels per day, each dollar of revenues per barrel would bring BC about $190,000,000 a year, at $6 per barrel BC would collect more than a billion a year.   What is a reasonable amount?

A new precedence:
This deal sets a new precedence in the country.   Saskatchewan, Manitoba and Ontario will likely seek revenues from pipelines in the future.   Is this something the energy industry will be OK with?   How much revenue is there available to pay off the provinces?

It will also add a new level of red tape for companies to deal with.

If this happens it will add to the cost of oil.   At the moment this is not an issue, but if the price of oil falls, which is not unrealistic given the increase in supply, there is a point where higher pipeline costs will impact the production of oil.  

Impact on Federal Provincial relations
How will the Federal government act?  Pipelines are a federal area of responsibility.   This deal effectively dramatically moves the provinces into a defacto partnership of pipeline developments with the provinces.

For decades we have seen an ongoing one way intrusion of the Federal government into provincial jurisdiction.  There is the constant drive to accumulate power in Ottawa.  Will the Federal government accept any reduction in their power?
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