The Post-Staples State: The Political Economy of Canada’s Primary Industries

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Part 4 – Transmission Industries: Oil & Gas and Water

Chapter X: 1The New Oil Order: The Post Staples Paradigm and the Canadian Upstream Oil and Gas Industry - Keith Brownsey (Mount Royal College)

1. Introduction:

It is the best of times for the Canadian oil and gas industry. As natural gas and crude oil prices have risen, upstream petroleum companies have seen their profits and stock value increase dramatically( Globe and Mail 12 May 2003, B5; Scott Haggett, Calgary Herald, 13 March 2004, A1). Domestic exploration is at unprecedented levels and investment in conventional and non-conventional oil and gas production has reached unprecedented levels. Even the issues facing the oilpatch have changed. Concern about the impact of the Kyoto Protocol, demands for greater environmental controls, overseas competition, market access, and increasing fiscal scrutiny have been replaced by concerns over skilled labour shortages, aboriginal land claims, regulatory reform and growing consumer unrest at a high fuel costs. The new agenda indicates the start if not the completion of a shift in the Canadian oil and gas sector – a transition that can be described as development from a staples to a post-staples industry. While the current set of problems facing the oilpatch are important they reflect an industry which has matured and found its place within an advanced industrial economy. There was no sudden break with the traditional staples model of development which characterized the post-World War II evolution of Canada’s petroleum sector. Instead, the transition has taken decades, beginning with the realization in the 1960s that Canada and especially the western sedimentary basin contained a finite amount of conventional crude oil and natural gas reserves. It has culminated in a technologically advanced, capital intensive model with secure and expanding markets.

The evolution of the upstream oil and gas industry in Canada – the exploration and production of crude and natural gas reserves – has been determined by competing ideologies and policies of the federal and producing provinces. The most contentious issue within the Canadian oil and gas industry is the Kyoto Protocol To The United Nations Framework Convention On Climate Change. After years of neglect, the federal government was once again attempting to assert control over the Canadian oil and gas industry. But even the Kyoto Protocol has diminished as an issue for the oil patch. With crude oil at over $60 (US) a barrel and natural gas hovering at $12.50 a thousand cubic feet (mcf), there is sufficient cash flow to offset the mitigation of greenhouse gas (GHG) emissions mandated by the Kyoto agreement or almost any other in environmental cost.

The announcement that Canada would ratify and implement the Kyoto Protocol contradicted the federal government’s loud approval of the United States Bush administration’s May 2001 National Energy Plan (National Energy Policy Development Group, 2001). After the release of the Bush national Energy Plan, Jean Chretien immediately committed his government to selling Canada’s oil and natural gas to the United States in ever increasing quantities. The September 2002 Kyoto announcement changed little. While responding to global environmental concerns Ottawa understood the importance of a thriving oil and gas industry to the Canadian economy. It would do little to jeopardize the industry’s strong economic position. Nevertheless, the federal government was suddenly committed to implementing a vague set of environmental regulations that the Canadian oil and gas industry was convinced would mean its demise in the competitive global marketplace.

Unlike earlier attempts to influence the direction of energy policy – especially in the 1973-1985 period – the federal government’s motivation was not to secure supply or to share in the wealth of the oil and gas sector. Through the ratification and implementation of the Kyoto Protocol as well as recent efforts to initiate closer energy links with China, the Liberal government sought to counter the new-sovereignist tendency of the Bush administration (Hirsh, 18-43, Ikenberry, 44-60, Hutton, this volume). This was an effort to reassert – in a new way – a federal role in domestic oil and gas production. But unlike earlier federal efforts to claim a role in oil and gas development, the attempt to resist the north-south pull of the United States and to reassert at least some influence in the oil and gas sector demonstrated an awareness of the industry as a mature staples sector within the Canadian economy. These are not policies of traditional state intervention or nationalization. Rather they are designed to comply with international environmental agreements and to diversify Canadian energy markets. They are an attempt to demonstrate Canada’s commitment to multilateralism as opposed to the unilateralism of the United States under the presidency of George W. Bush. This policy of multilateralism and open markets indicates that the notion of a dependent hinterland no longer describes the Canadian oilpatch. The federal policy of environmental regulation and new markets, illustrates a mature staples, if not a post-staples industry.

The new federal approach to the oil and gas industry, however, appears at odds with several of the producing provinces which have jurisdiction over significant oil and gas reserves. The environmental, regulatory, and royalty policies of the provinces, especially the largest producing region of Alberta, are often opposed to federal environmental and trade initiatives. The Alberta government, for example, demonstrates an attitude toward the industry that is typical of regions dependent on traditional staples extraction. This is illustrated by the comic efforts of the provincial government to portray Ottawa as intent on making off with Alberta’s resource wealth. The provincial position reflects the government’s close relationship with small explorers and producers who feel threatened by federal policies and regulations. As a result, the Alberta government under Ralph Klein has aligned itself with a segment of the oil and gas industry that depends on state assistance and protection for its survival. The federal government, on the other hand, has encouraged knowledge production, specialized services and diversified markets to offset both the depletion of conventional reserves and much-less-expensive foreign competition. While Ottawa’s policies of environmental protection and market expansion appear contradictory, the are, in fact, reflective of an industry that no longer depends on local exploration and production.

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