The politics of upgrading Alberta bitumen

A curious thing happens when governments get close to an election; they become extremely risk averse.

Inside government, it’s called the red zone: a pre-writ period where only new policy forming the election platform sees the light of day, and any old policy that could potentially be a liability is downplayed and tucked away in favour of more positive components of the government’s record.

Alberta is in the red zone right now, and arguably has been since Ed Stelmach announced he was stepping down last January.

We may have witnessed a tangible example of red-zone politics back in November, when Energy Minister Ted Morton spoke to the Calgary Energy Roundtable. Morton referenced a Stelmach-era oilsands policy called BRIK. That’s Bitumen Royalty In-Kind, a 30-year services contract signed by the province with a private-sector firm to build an upgrader/refinery near Redwater. It will turn the province’s royalty bitumen into diesel fuel.

While offering support for the previously inked deal, Morton stepped back from the broader policy, suggesting the Tories wouldn’t be doing any more deals of this sort. “I’m not a fan of taking additional risk,” said the minister. “I’m not sure that we would see necessarily the same model we used again, but I still think there are opportunities.”

If electoral risk played any role in Morton’s comments, based on a ThinkHQ public opinion survey of 1,330 eligible Alberta voters in December, the provincial government has little to fear from the policy or the deal.

The fact is there is a tremendous groundswell of support for increased upgrading and refining capacity in Alberta. Eighty-four per cent of Albertans feel it’s important that our oilsands are upgraded here, and further, 70 per cent believe that we should be upgrading and refining more than we do today.

That’s where the politics come in. Eighty-one per cent of Albertans feel that the government should be taking steps to increase the amount of oilsands upgrading and refining provincially.

That support is both strong and widespread. Forty-four per cent said the government “definitely should” be taking steps to increase Alberta’s capacity, versus only three per cent saying they “definitely should not.” Interestingly, looking across the partisan spectrum, it’s likely PC and Wildrose voters who are most supportive of public-sector action to spur activity — 87 per cent. Only 20 per cent of likely ND voters say likewise.

The results are even more surprising when Albertans are asked their views on specific policy tools for stimulus, ranging from higher export royalties, to tax incentives, to direct subsidies.

Seventy-three per cent of Albertans would be in favour of additional royalties on the export of raw bitumen from Alberta.

With the possible exception of Stelmach, PC governments tend to prefer the carrot over the stick when it comes to the oil and gas industry — a new export duty on Alberta bitumen is highly unlikely. But the strong support from the public (Wildrose and Tory voters included) for such a punitive approach indicates just how deep the desire is for additional upgrading capacity.

Fifty-six per cent of Albertans would approve of government tax incentives to promote private investment (64 per cent of PC and 69 per cent of Wildrose voters). A plurality would support government loan guarantees for private firms building new upgraders and refineries (49 per cent approve versus 36 per cent disapprove). Again, support is highest with likely PC (55 per cent) and Wildrose (56 per cent) voters.

The public’s desire for additional facilities is not, however, a blank cheque — indeed, it seems the act of writing cheques is where Albertans draw the line. Most do not favour government providing either operating or capital subsidies to private firms building upgraders, although they are split right down the middle on the prospect of creating a Crown corporation to build and operate Alberta upgrading and refining facilities.

And what about the public’s reaction to the deal referenced by Morton? It’s a policy that certainly fits well with most Albertans — 78 per cent offered support for the deal that provided a long-term bitumen upgrading contract to a private firm promising to build a $5-billion plant. And as with the overall trend, likely PC and Wildrose voters were the most emphatic in their support (86 and 83 per cent respectively).

So the political risk is a longer-term hazard. If, someday, the provincial government is required to write a cheque for a deal gone sour, the public’s reaction will not be good, regardless of how well intentioned the policy.

For the immediate electoral cycle, however, BRIK and the deal to build a new Redwater upgrader offer little or no real political risks.

On the contrary, it is an interesting issue in terms of wedging the opposition. The Wildrose party has a difficult time with it. Philosophically, they espouse a government that leaves business to business, but their supporters resoundingly want more local upgrading, and support state action to get there.

The NDs also have a difficult time with the issue due to a rift within the party. To traditional “labour” New Democrats, public sector support for upgrading means more jobs and prosperity. But to the so-called green left (roughly 20 per cent) of likely ND voters, support for more upgrading means support for oilsands and the environmental implications that go with it. And they aren’t signed up for that. That is a significant wedge, particularly in the Edmonton region, where the bulk of ND support resides.

When Morton referenced BRIK at the Calgary Energy Roundtable in November, he noted that just that morning, cabinet had a “heated” discussion about how to boost the upgrading of bitumen in the province.

We are now deep into the red zone and it will be interesting to see the extent to which that discussion finds its way into the public campaign. As it stands today, policy to promote local upgrading and refining is an issue that bolsters the PC government, rather than arming the opposition.

Marc Henry is president of ThinkHQ Public Affairs Inc., an Alberta-based public and government relations and public-opinion research firm. Info@thinkhq.ca