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The Politics of Upgraders

Posted January 1st, 2012 in Alberta Politics, News by Alex Zagoumenov

A curious thing happens when government gets 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 favor of more positive components of the government’s record.

 

Alberta is in the “Red Zone” right now, and arguably has been since Ed Stelmach stepped down last January.

 

We may have witnessed a tangible example of “Red Zone politics” back in November when Energy Minister Ted Morton’s spoke to the Calgary Energy Roundtable.  Morton referenced a Stelmach-era oilsands policy called BRIK.  That’s Bitumen Royalty In-Kind (BRIK), and 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 they 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 1330 Alberta eligible voters in December, the Provincial Government has very 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.  84% of Albertans feels its is important that our oilsands are upgraded here, and further 70% believe that would should be upgrading and refining more than we do today.

 

That’s where the politics come in.  Over eight-in-ten (81%) 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. 44% said the government “definitely should” be taking steps to increase Alberta’s capacity vs. only 3% 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%. Only 20% 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.

 

Almost three-quarters (73%) of Albertans would be in favor of additional royalties on the export of raw bitumen from Alberta.

 

With the possible exception of Ed 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.

 

Over half (56%) of Albertans would approve of government tax incentives to promote private investment (64% of PC and 69% of WR voters).  A plurality would support government loan guarantees for private firms building new upgraders and refineries (49% approve vs. 36% disapprove).  Again, support is highest with likely PC (55%) and Wildrose (56%) 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 favor 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 Minister Morton?  It’s a policy that certainly fits well with most Albertans’  – nearly eight-in-ten (78%) offered support for the deal which 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% 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 offers 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 Green Left” (roughly 20%) 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 the Minister 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 & government relations and public-opinion research firm.