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The tributes and commentaries ranged from
reflections by ordinary citizens to formal commentaries from the great and
the good. One of Lougheed’s biographers, Alan
Hustak, observed that he was “the architect
of modern Alberta” who, among many other achievements, helped turn the
province’s petroleum industry into a global powerhouse. Nothing you can
say about this great man seems over the top.
Lougheed’s career in the provincial
Legislature began in 1967 – coincidentally, the year the Great Canadian
Oil Sands (Suncor) plant was commissioned. The convergence is compelling,
since several of his greatest achievements were oilsands-related.
Energy issues dominated his years in power (1971 to 1985), and he was a
decisive figure in what became known as Canada’s energy wars.
Among governmental issues, oilsands
remained a core interest to the end of his long life. As he said in an Oil
Sands Oral History Project interview 18 months ago, “After I left
government in ’85 I said to my successor, Don Getty, ‘Don, I will
stay out of most things you’re doing… but the one thing I am
going to stay involved in is the oilsands, because
I am very interested in its evolution and its development.…’
Things happened so quickly [under] Premier Klein. I have stayed involved in
the oilsands in a more public way and I have
discussed it frequently with Premier Stelmach as
well. Perhaps more than any other, that’s the one subject I have stayed
involved in since I left government.”
The Energy Wars: Lougheed’s
early political battles began with a shot across the bow from Prime Minister
Pierre Trudeau.
Inflation had become a national problem, oil prices
were rising, and on September 4, 1973, Trudeau asked the western provinces to
agree to a voluntary freeze on oil prices. Nine days later, his government
imposed a 40-cent tax on every barrel of exported Canadian oil. The tax equalled the difference between domestic and
international oil prices, and the revenues were used to subsidize imports for
eastern refiners. At a stroke, Ottawa began subsidizing eastern consumers
while reducing the revenues available to producing provinces (mostly Alberta)
and the petroleum industry.
This outraged Premier Lougheed,
who understood how long and hard the province had fought for control of its
natural resources; resource ownership had not been conferred upon the
province until 1930. In response, Lougheed
announced that his government would revise its royalty policy in favour of a system linked to international oil prices.
His timing was impeccable. Two days later, on
October 6, 1973, the Yom Kippur War broke out – a nail-biting affair
between Israel and its Arab neighbours. OPEC used
the conflict to double the posted price for a barrel of Saudi Arabian light
oil to US$5.14. The Saudis and the other Arab states then imposed embargoes
on countries supporting Israel, and oil prices rose quickly to $12. These
events aggravated tensions among provincial, federal and industry leaders.
The rest of the 1970s were marked by rapid-fire,
escalating moves and counter-moves by Ottawa, the western provinces and even
Newfoundland. From 1974 to 1985, Ottawa imposed an export tax on conventional
crude oil – a move Lougheed called “the
most discriminatory action taken by a federal government against a particular
province in the entire history of Confederation.”
Lougheed strongly asserted and
ultimately resolved, beyond question, Alberta’s ownership of most
hydrocarbon and other mineral resources within its provincial borders, and he
made it clear to industry itself that the government was in charge. “It
was obvious that the oilsands were owned by the
people of Alberta,” he explained in the Oral History interview.
“We consistently and constantly made sure that the industry understood that
the Government of Alberta was the owner, and we weren’t just there in a
supervisory or regulatory way. We were extensively involved because we were
the owners.”
Canada’s political conflicts over energy
climaxed with the introduction of the National Energy Program (NEP) in 1980. Lougheed led negotiations on significant modifications a
year later, mainly exempting “new oil,” but the contentious
policy was not fully removed until 1986. As the policy collapsed due to
severe recession and wrong assumptions about global oil prices, Lougheed played a key role in negotiating a new
constitutional agreement for Canada, then retired from office.
Syncrude: One of the positive
developments of the energy wars era was the rescue of Syncrude
in 1975. The oilsands project’s costs had
soared, and one of its partners had pulled out. To a certain extent, that
rescue involved a different way of looking at royalties. Lougheed’s
interest in petroleum royalties began early in his years in power, before the
events of the early 1970s embargo drove oil prices to historically high
levels. “We were in a fairly experimental period with the oilsands,” he said, “we had the Great
Canadian Oil Sands [project] which was struggling. When Syncrude
came along and we got into the negotiations, it was clear we could not
approach [the owner’s share] from the perspective of gross
revenue….We had inherited from [Ernest Manning’s] Social Credit
Government, a good system of royalties for the conventional oil and gas
system, which was a percentage of gross revenue. We modified it from time to
time in government, but the conventional oil and gas business was based on a
percentage of the gross revenue.”
The oilsands were a
different kettle of fish. Lougheed continued,
“Right from the start it was clear that it wasn’t really fair
because of the risk element that came with being involved in such a new
process. You know, a lot of people wondered, was it going to work? Would it
be economic?” All of those questions led to a discussion between the
owner – the Government of Alberta – and Syncrude.
‘What kind of royalty scheme should we have?’ [The discussion]
evolved into the whole question of a net profits approach. It was completely
different than [the policy used for] the conventional oil and gas industry.”
The 1975 Winnipeg Agreement, which saved the Syncrude project, was one of the few moments of
cooperation among governments during the energy wars. Always a savvy
negotiator, during those 12 hours of meetings on February 1st, Lougheed committed the province to take a 10 per cent
interest in the project for the then-mind-numbing sum of $240 million (about
$1 billion in 2012 dollars). Alberta would provide loans that the province
could convert into equity, would construct no-risk utilities for the project,
and would purchase an ownership interest for cash. This proved to be an
extraordinary investment for the people of Alberta, “the owners of the
resource.”
AOSTRA: Through the formation of a government agency,
Peter Lougheed created a scientific and technical
environment that unlocked the secrets of producing bitumen from the deposits
too deep for mining, and fundamentally transformed the industry itself.
At the time, work on the deeply buried oilsands reservoirs, which represent about 90 per cent of
the resource, had stalled. Imperial had made progress on the Cold Lake
deposit, but there were no demonstrated technologies that could commercially
unlock deep oil from the Peace River, Athabasca or Wabasca
(now seen as an extension of Athabasca) deposits. At the time, there was
little likelihood things would improve. Few companies were actively
developing oilsands leases outside the mineable
area.
Originally called “Project Energy
Breakthrough,” the idea was to speed up the development of new in situ oilsands technologies. When legislated into existence in
June 1974, the Alberta Oil Sands Technology Research Agency (AOSTRA) became
one of the largest research and development programs ever launched in Canada.
The act originally limited AOSTRA’s activities to oilsands,
but an amendment to the legislation soon gave the agency the authority to
fund heavy crude oil research. In 1979, the Crown corporation’s mandate
was expanded again to include enhanced recovery of conventional crude. Over
its lifetime, AOSTRA funded about $1 billion (1980 currency) in oilsands extraction research.
Initially, the Alberta government agreed to invest
$100 million in this technology development fund. During the active life of
the corporation, however, AOSTRA spurred the petroleum industry to undertake
numerous demonstration projects, representing some $2 billion of research and
development spending. In most cases, the authority essentially agreed to
match the amount of money a company or industry partnership was willing to
invest in oilsands projects.
During the AOSTRA years, the industry launched
in-situ demonstration projects in all the major oilsands
deposits. These included cyclic steam stimulation (CSS); steam flooding;
forward combustion; reverse combustion; and combined forward combustion and
water injection (COFCAW). However, AOSTRA’s crowning achievement
occurred 25 years ago, when its Underground Test Facility proved the
effectiveness of steam-assisted gravity drainage (SAGD.)
Premier Lougheed got
excited when he talked about SAGD. “I think SAGD…should be
encouraged by the owner and is being encouraged by the owner. It’s the
longer-term asset for the province. Surface mining has its limitations, and
involves more environmental and water concerns. So, there is a clear and
important distinction when you get into oilsands
and that’s what the Alberta Oil Sands Technology and Research Authority
had been focusing on….Throughout all of our discussions here,
let’s make sure that we are drawing a distinction between SAGD and in
situ [those words can be used interchangeably] and surface mining.” Lougheed served on the board of MEG Energy, which was one
of the first companies to develop a commercial SAGD operation.
Ideal Model: AOSTRA spurred oilsands experimentation and development, although
prospects for further development diminished in early 1986 when a precipitous
collapse in oil prices, once again, threatened commercial development. While
AOSTRA did not have a mandate to undertake projects on its own, in the 1980s
it took a significant risk by constructing the now-legendary Underground Test
Facility. The UTF proved steam-assisted gravity drainage (SAGD), which has
since emerged as the most important system for developing deep underground oilsands reservoirs.
A noteworthy footnote to this discussion is that the
2009 Summit of the Americas held AOSTRA up as an ideal model for energy
development. According to the Centre of International Governance Innovation
(CIGI), which sponsored the summit, AOSTRA “engaged the private sector
and the university research community in developing technology related to the
oilsands, while the government retained the rights
to the technology.” A government endowment allowed the organization
“to function independently of the electoral cycle. A dedicated expert
and respected seven-member board of directors helped secure the private
sector’s buy-in.” In addition, “control by the government
helped maintain continuity over downturns in the economic cycle.”
CIGI also noted with approval that, before AOSTRA
determined its goals, “it conducted two years of extensive
consultations with many stakeholders. Only after determining exactly where
the technology gaps existed did AOSTRA put out a call for proposals.”
Furthermore, “aside from successfully developing new technology, AOSTRA
fostered and financed a new generation of academic and scholarly expertise in
many aspects of oilsands development. The
investment in human resources is often discounted, but has been fundamental
for the sector’s success in Alberta.”
Afterword: Much has been said about
Lougheed’s impact on the province of Alberta.
However, out of the seemingly endless stream of tributes that followed his
death came this from former Prime Minister Brian Mulroney, whose government
finally dismantled the National Energy Program. “Peter built the modern
Alberta: schools, universities, hospitals, highways and whole communities
[like modern Fort McMurray]. He always defended Alberta’s interests brilliantly
around the federal-provincial table. At the same time, he would be the first
to say…‘We were Canadians first.’”
Peter McKenzie-Brown
Language Instinct
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