Foreign Policy Blogs

Alberta’s New Energy Minister on the Keystone XL Pipeline

ken hughes

Source: Alberta Diary

The following was posted in The Kensington Review, which interviewed by email Ken Hughes, the newly appointed Energy Minister in the Canadian Province of Alberta. We are grateful to the minister for his time, and to the staff in the provincial government who assisted in this effort, especially Bob McManus and Bart Johnson.

Kensington: Just how important is the Keystone XL pipeline to the development and exploitation of the oil sands in Alberta?

Minister Hughes: Oil sands supplies are sought after in the gulf coast region as secure and reliable replacements for unpredictable imports from declining production sources in Venezuela and Mexico. Currently, Alberta’s oil can only be shipped as far as Cushing, Oklahoma where the price per barrel is based on West Texas Intermediate (WTI) price. Access to refineries along the Gulf Coast through pipelines like the Keystone XL will allow Alberta producers to fetch the Brent Sea Crude price which lately has been sold at $10-$30 higher than the WTI price. This is estimated to have cost the Alberta government more than $3 billion in foregone royalties and taxes, and the federal government $1 billion in foregone taxes.

As well, in March 2012, CIBC World Markets estimated Canadian producers are giving up $18 billion a year, or $50 million a day by not accessing the international market. With KXL, Canada will have export capacity of over 4 million bpd compared to present exports of 2 million barrels per day.

Projects like Keystone will boost the economies of Alberta and Canada; create and support jobs across the country; and generate higher royalties and taxes that help pay for health, education and the other programs and services we rely on.

Kensington: How closely do you work with TransCanada on the pipeline?

Minister Hughes: While Alberta does not support specific companies or facility projects, it does encourage viable projects that advance our goal of diversifying markets and increasing access to markets in the Pacific Rim. The Government of Alberta is supporting the Keystone XL Pipeline Project as it is one of the more efficient ways to extend an existing system to gain gulf coast access. During the State Department’s pipeline process former Alberta Premier Ed Stelmach, Alberta Deputy Minister of Executive Council, Peter Watson and Alberta Environment’s Deputy Minister, Ernie Hui provided project support submissions with respect to the quality of Alberta’s heavy oil and the environmental record of oil sands producers. It’s also important to note that in November 2011, newly elected Alberta Premier Alison Redford travelled to Washington to meet with State Department representatives to discuss the merits of the pipeline.

Kensington: Do you see the recent delays as US domestic politics getting in the way of the inevitable construction of the pipeline? Or is there a chance it won’t be built at all?

Minister Hughes: Alberta is confident that after the political season is over in the U.S., there will be bipartisan support for Keystone XL. We were pleased that last month President Obama’s office stated that it supports TransCanada’s application to build the first leg of this pipeline from Cushing to the Gulf Coast, and that they are committed to taking every step possible to expedite the necessary federal permits. We were also pleased to hear that TransCanada has reapplied for a Presidential Permit for the Keystone XL pipeline to be built across the Canada-U.S. border. While we respect and understand that approval of the pipeline is a U.S. domestic matter, Alberta believes very strongly in the merits and benefits of this pipeline. Alberta is the safest, most secure and responsible source of oil for the United States and we are optimistic that the project will be evaluated on facts and not on rhetoric.

Kensington: Your predecessor in office, Ron Liepert, told a meeting of the Foreign Policy Association last year that, as much as he’d prefer to send the oil south through the XL pipeline, he had no problem with building a different pipeline to the Pacific Coast in collaboration with the government of British Columbia to send the oil to Asian consumers. Do you share that view?

MInister Hughes: Opening up access to new markets is paramount for Alberta producers if they are to receive a world price for their oil. The denial of the application for the XL Pipeline extension to be built from Alberta into the U.S. just reinforces our commitment to seek out all opportunities for oil exports. Right now markets like those around the Pacific Rim are hungry for oil. In fact it’s estimated that China will soon surpass the U.S. in its demand for oil. As Alberta is one of the few jurisdictions around the world who will significantly increase oil production over the next few years, we are best positioned to meet that demand. That is why we are also looking at new routes for our oil like the Enbridge’s Gateway Pipeline Project and Kinder-Morgan Trans Mountain Pipeline which would route oil through Alberta and BC into terminals along the West Coast.

Kensington: When it comes to provincial revenue, how much better off would Alberta be with the pipeline open and running at full capacity? Compared to not having the pipeline at all?

Minister Hughes: Not having access to Brent crude prices is estimated to have cost Alberta more than $3 billion in foregone royalties and taxes, and the federal government $1 billion in foregone taxes. The Government of Alberta receives $223 million in royalty revenue for every dollar increase in the price of crude oil so the more oil sold at a greater price, means greater revenues not only for Alberta, but also for Canada.

Kensington: The route of the pipeline through Nebraska has been the chief issue, passing over the Ogallala Aquifer. Have you worked with the government of the State of Nebraska directly of resolving the issue? How cooperative or not have they been? Are they more receptive to the idea than the people at the State Department?

Minister Hughes: The Alberta government is not involved in the application for the pipeline and respects the U.S. process and decisions for the development of pipelines. What’s important is that these decisions impacting the economic wellbeing and energy security of the United States are based on fact, not emotion.

Kensington: What political and governmental similarities and differences do you see between an energy province like Alberta and a similar state (Wyoming or North Dakota for example) in the US?

Minister Hughes: The biggest difference is that most mineral rights in North Dakota belong to land owners whereas in Alberta the majority of mineral rights are owned by the province. Alberta has title to mineral rights within approximately 81% of Alberta’s land area. The remaining 19% are privately-owned or freehold mineral rights. These are held by the federal government under National Parks and Indian Reserves (10.6%); by private individuals and corporations (8.4%). However, both our jurisdictions are committed to maximizing the economic benefits to the people from the resources, while ensuring development is accomplished in an environmentally sound manner.



Jeff Myhre
Jeff Myhre

Jeff Myhre is a graduate of the University of Colorado where he double majored in history and international affairs. He earned his PhD at the London School of Economics in international relations, and his dissertation was published by Westview Press under the title The Antarctic Treaty System: Politics, Law and Diplomacy. He is the founder of The Kensington Review, an online journal of commentary launched in 2002 which discusses politics, economics and social developments. He has written on European politics, international finance, and energy and resource issues in numerous publications and for such private entities as Lloyd's of London Press and Moody's Investors Service. He is a member of both the Foreign Policy Association and the World Policy Institute.