Fight Between Governments Delays Offshore BC Drilling

Abstract: A fight between the government of British Columbia and a senior member of the federal government's Liberal cabinet is delaying a review of a moratorium on drilling offshore British Columbia. The tussle demonstrates how Canadian energy policy is drifting because of the Liberals' unthreatened grasp of power.

Analysis: The fight between the government of British Columbia (BC) and a senior member of the Liberal cabinet illustrates how Canada's energy policy is moving further away from rationality the longer the federal government faces no serious threat to its enduring hold on power.

With opposition parties in disarray and continuing to poll poorly, energy companies are going to have to wait a long time before they can prove whether the province's much-touted offshore potential for large oil and natural gas finds is as false as Michael Jackson's nose.

BC's premier, Gordon Campbell, wants to diversify the province's economy, hard hit by downturns in the forestry, mining, fishing, and tourism industries. While production, particularly natural gas, has been rising in the northeast corner of the province near Fort St. John, the biggest potential is believed to be located offshore.

The Geological Survey of Canada, a federal agency, has estimated the Queen Charlotte Basin, located south of the Alaska Panhandle, could contain 10 billion barrels of oil and 26 trillion cubic feet of gas. Those numbers are highly theoretical because no well has been drilled in three decades because of a drilling moratorium imposed in 1972.

Energy Minister Herb Dhaliwal, an MP elected from a BC riding near Vancouver, proposed a three-person panel spend six months looking at issues related to offshore drilling. The goal was to consider all economic, social, and environmental information so the federal government could make a decision on the future of the moratorium by the end of the year.

David Anderson, Canada's environment minister, who also hails from a BC constituency, opposed in cabinet the plan to examine ways of removing the moratorium, He was a key player in establishing the restriction more than 30 years ago when he was a provincial politician.

Offshore drilling moratoria are nothing new, on either side of the border. A 12-year ban on drilling for oil and gas on the Georges Bank, a rich fishing area in the Atlantic Ocean stretching from Nova Scotia to Cape Cod, was set to expire at the beginning of 2000 but was extended to 2012.

The 1999 Canadian move was not a huge surprise since it merely matched a similar ban imposed by the U.S. in 1998. President Bill Clinton extended by 10 years a moratorium on drilling off most parts of the U.S. coast, shifting the deadline to 2012.

The decision reflected the then-president's efforts to find a middle ground between California officials, who wanted a permanent ban on oil and gas leasing along their coast, and energy producers, who wanted the option of looking for hydrocarbons on the outer continental shelf.

The ability of Anderson to block the review simply because of his personal views, with little regard to the needs of industry or the feelings of BC residents, demonstrates the growing gulf between Western Canada and policy makers in Ottawa.

A similar disregard of the energy industry was shown in last month's federal budget. Ottawa finally decided to lower its tax bite on natural resources industries, matching reductions given three years ago to other sectors. However, a gradual implementation scheme will leave petroleum and mining companies at a disadvantage in competing for capital for five years.

Arrogance is partially responsible for the lack of sensitivity to the energy industry, which was responsible for much of Canada's C$50 billion trade surplus with the U.S. in 2002.

The Liberals, under Prime Minister Jean Chretien, have ruled for nine years after three successive majority election wins. An ideological split on the right, between the Progressive Conservatives and the Canadian Alliance (roughly equivalent to the Republicans), means the Liberals (similar in outlook to the Democrats) are in little danger of losing their grip on the levers of power. Even deep divisions among Liberal MPs as a result of the race to replace Chretien, scheduled to retire next February, have done little to reduce the party's commanding popularity with voters.

With a review by Ottawa at least temporarily stymied, BC says it will push ahead with its own process to define issues likely to be raised by offshore drilling. However, the province has as little power as a hydroelectric dam in a desert because jurisdiction for Canada's offshore coasts lies exclusively within the federal purview.

Petroleum companies with West Coast offshore leases, such as Petro-Canda and Shell Canada, are staying out of the fight. Legal (since the native population is threatening to go to court over unsettled land claims), economic, and environmental issues must be resolved before they will commit to spending major bucks to see if estimates by the Geological Survey of Canada have any relationship to what's found via the drill bit.

Residents of British Columbia, who have seen their province go from an economic powerhouse to a have-not province in less than a decade, only need to look at the benefits created in Newfoundland and Nova Scotia from offshore fields such as Hibernia, Sable, and Terra Nova to see what they are missing.

With gas prices rising because of falling supply, it's better for both governments to begin assessing the pros and cons of offshore drilling sooner rather than later. This is not to advocate running roughshod over native land rights or environmental issues. Concerns about the latter point should be mitigated by the plethora of rigs working around the globe, in climates varying from arctic Alaska to tropical Brazil, that show offshore drilling can be conducated in a responsible manner. The drilling of wells off Canada's East Coast, while marred 21 years ago by the deaths of 84 men from the sinking of drilling rig Ocean Ranger, has yet to cause a major environmental problem.

Unless Paul Martin, the former finance minister considered to be the front-runner to replace Chretien, performs a completely unexpected about-face, the chance of BC seeing offshore wells drilled in the next few years has sunk as completely as the Titanic.

Associate Editor: Robin Beckwith