It’s fair to say that Alberta’s oil and gas and Alberta separatism are, well, inseparable. 

Consider that the first noticeable flare-up of separatist talk was in the late 1970s, in response to Pierre Trudeau’s scheme to pour more of the proceeds from Alberta’s windfall petroleum wealth into federal coffers through the notorious National Energy Program (NEP).

The “Let the Eastern bastards freeze in the dark” era that plan created died down with the collapse of global oil prices in the early 1980s. But thanks to the NEP legacy, the get-out-of-Canada sentiment smouldered for decades before flaming up after 2015 – when Trudeau fils and the Liberals toppled the Alberta-centric Harper Conservatives and took baby steps to address climate change by containing emissions from oil and gas production. 

The heat intensified last year when, despite threats from Alberta politicians like Alberta Premier Danielle Smith and Reform party founder Preston Manning, Canadian voters re-elected the Liberals under Mark Carney, blocking the ascent  of Pierre Poilievre – another Albertan and a fervent oil and gas promoter.

Having warned before the election that a return of the Liberals would lead to a national unity crisis, Smith and elements of the governing United Conservative Party have done their post-election best to fan secessionist flames, with Ottawa’s approach to oil, gas and pipelines fingered as a prime source of grievance. 

In an extraordinary performance during an online public forum on separatism last weekend, the Alberta Premier became choked-up and teary-eyed while stoking Albertans’ sense of  hurt and anger over Ottawa’s approach to oil, gas and pipelines over the last decade. 

“A lot of Albertans are angry and some are more than angry, they’re hurt,” she began, her voice shaking. “Our economy runs on energy…and for years it felt as though Ottawa was working to shut our economy down. 

“We watched pipelines cancelled, we watched a law passed that Albertans came to know as the ‘no more pipelines’ act’, we watched an emissions cap aimed at one industry, ours, in essentially one region, Alberta, and electricity regulations that would have made it hard to keep the lights on in one of the coldest places in the country,” Smith lamented. 

“So when a proud hard-working people feel that their contribution is taken for granted and their livelihood is treated as something to be phased out some begin to ask a painful question – does this country actually want us?”

Having legitimized, for the umpteenth time, the separatist cause, Smith went on to say that she (really?), along with her government (maybe), her caucus (who knows) and her party (not true for many), support Alberta remaining in Canada because Carney has abandoned Trudeau’s climate polices, paving the way for more oil and gas production. Albertans’ anger “was not wasted, our fellow Canadians listened and the country changed course.” (Never mind that the course correction is not fundamental, considering that the Trudeau Liberals approved several pipelines, spending billions of dollars for one moving more Alberta bitumen to the West Coast).

Whether Ottawa’s new(ish) approach to the long-festering grievance will boost the pro-Canada cause in the Oct. 19 referendum remains to be seen. But there is another factor that could influence all but the hardest of hard-line separatists – rather than unleashing fossil fuel production separatism could leave the oil and gas industry worse off, backing Alberta into a corner where it would be subject to Washington’s whims. 

Costly scenarios

That conclusion emerges from reading the  Overview Report on the economic and fiscal impact of Alberta separation released mid-month by the University of Calgary’s School of Public Policy, a report that was reviewed and given the thumbs-up by an oversight panel appointed by Smith. (It should be noted that everyone involved seems to be taking as given that there will be robust future demand for increased oil and gas exports from Alberta, an assumption that is certainly debatable.)    

The University of Calgary researchers developed two separation scenarios, “smooth,” and “difficult.” In the former, the Rest of Canada (ROC) decides it’s best to limit economic damage by accommodating Alberta’s separation and getting matters settled as quickly as possible.

In the “difficult” scenario, negotiations are fractious and prolonged, worker and investor uncertainty grows, interest rates rise and energy exports lag. The smooth exit lays a five-year $50 billion hit on the Alberta economy, the difficult divorce a negative impact of $170 billion over five years.

Over the long term, the gap between the two scenarios is even greater. The report estimates that over 20 years the smooth scenario would have a modest upside compared with Alberta remaining in Canada – a rise in GDP of 3.4 percent and slightly lower taxes per person. But the long run downside of a difficult exit is a lot steeper – GDP falls by 16.2 percent, employment declines by 4.7 percent and taxes per person rise by $6,600. 

The two separation scenarios – ranging from somewhat better to much worse – may come as a surprise to anyone who has bought into the story about how the federal government’s energy policies have stifled Alberta’s prosperity. Freed from Ottawa’s restraints wouldn’t full development of the Province’s oil and gas resources make Alberta boom like the days before Trudeau the Second broke Danielle Smith’s heart? Not very likely.

Under its “smooth” scenario, the University of Calgary’s report observes that – on the upside – a separate Alberta would no longer be subject to federal environmental laws, including climate legislation, which it claims, “have impeded the development of Alberta’s natural resources in the past.” And with only a provincial regulator to deal with, “there would be more certainty for investors about approvals,” while the province could scrap carbon capture and storage requirements for new developments, lowering production costs. But that’s about as good as it gets for those dreaming of Alberta as an independent Petrostate, even with a smooth parting of the ways.

U.S. has leverage

“A strong energy sector after independence would also hinge on Alberta’s ability to send oil and natural gas to market through pipelines. Unless Canada was still interested in expanding pipeline capacity to the West Coast, this would require U.S. administrations that were sympathetic to pipeline development,” says the report.

It seems far-fetched that the Rest of Canada – and especially British Columbia – would consider expanding pipeline capacity to the West Coast for a separate Alberta, no matter how amiable the divorce. But even if the ROC turned the other cheek on West Coast pipeline expansion, Alberta would still have to rely upon the kindness of the Americans.   

“How sympathetic the U.S. government would be depends not only on the political complexion of the administration and Congress, but also on U.S. energy security needs and its own energy export ambitions,” says the Overview report, noting that in addition to the vagaries of U.S. politics, demand for more Alberta oil would hinge on several factors beyond Alberta’s control. 

These include stable or increased world prices and competition in the U.S. market from Venezuelan crude, which vies directly with Alberta bitumen. As for more pipelines to get Alberta crude to the world: “It is unlikely that the United States would allow Alberta to access Asian markets through the West Coast. West Coast states would remain opposed, and U.S. energy companies would be unlikely to give their support.” 

Even if separation somehow leads to increased oil production and export, there is another factor putting a damper on things – few new jobs would result. Employment growth will be only 0.7 percent higher over the long term in a separate Alberta than it would have been “because much of the growth is in the oil and gas sector, which does not employ as many workers relative to its share in the economy as other sectors such as services.” 

So if the smooth, no-fault, damn the environment divorce scenario produces modest economic gains and a few jobs, what happens if the Rest of Canada gets snarky and things become fractious? 

For one thing, the proposed West Coast pipeline through B.C. would surely be a dead letter. Furthermore, an aggrieved Canada could impose additional tolls on existing export pipelines. That would further increase reliance on the U.S. for getting getting more oil and gas exports to market, and that could get messy.  

“The U.S. might feel that it could drive a hard bargain with Alberta over energy access, as Alberta would have less access to alternative international markets through Canada. The U.S. could easily ask for a significant share of pipeline revenues and reduce access even on existing pipelines as a negotiating tactic,” says the report.

Think about that for a bit. If the U.S. can easily extract higher tolls or block pipeline access it could hold hostage an Alberta economy that, to quote Danielle Smith, “runs on energy.” It can use that leverage to drive down prices or give U.S. energy companies an advantage over Alberta producers. Or it can take it one step further and set in motion the 51st state scenario envisaged by many separatists – secret and otherwise.   

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