As the clock ticks down towards Premier Ed Stelmach’s pivotal announcement on energy royalties, many groups and individuals have been urging the government to heed former premier Peter Lougheed’s advice to “think like an owner.”
I agree and would add that the premier should also start thinking like a negotiator.
Unfortunately, as our province’s leading man in what is essentially a crucial set of negotiations over the price of our collectively owned resources, Stelmach has so far failed to inspire confidence.
He doesn’t seem to grasp the notion that the goal of negotiations is to get the best possible deal for his side (Alberta citizens) no matter how many feathers that might ruffle on the other side (Big Oil).
In particular, Stelmach seems to be falling into the trap that swallows up many rookie negotiators who mistakenly believe that negotiation automatically means “cutting it down the middle.”
Big Oil has exploited this weakness admirably.
By inundating Albertans with an almost daily barrage of hysterical reports and dire predictions, they have successfully established their stated position (that Alberta can’t afford any major royalty changes)
as one pole in the debate and the recommendations of the blue-ribbon royalty review panel as the other pole.
The problem with this is that the panel’s recommendations were already a compromise between what the panellists thought Albertans deserved and what they thought industry would be willing to pay. So any move to “cut it down the middle” would, in the memorable words of one of the panelists, be a “compromise on a compromise.”
This tactic of taking extreme positions in order to “move the goalposts” at the bargaining table is the oldest trick in the book — yet the government seems to be falling for it.
The truth about negotiating is that compromise is sometimes necessary — but not always.
It depends on your goals and, even more importantly, your bargaining power.
When it comes to the royalty debate, the government’s goals should be clear.
Both the royalty panel and the auditor general have demonstrated that, when compared to the citizens of other oil-rich jurisdictions, Albertans are not getting their fair share.
In fact, both the panel and the auditor proved that Alberta has forgone literally billions of dollars in potential revenue over the past decade — revenue that could have (and many would argue, should have) been used to help our schools, hospitals and communities cope with the pressures of growth.
That leaves us with the crucial question of bargaining power. On this score, it seems Big Oil has, once again, bamboozled the premier into thinking they have us over a barrel.
As a labour leader, I would be the first to raise the alarm if I thought thousands of jobs might actually be lost in Alberta. But, I frankly don’t buy Big Oil’s scare tactics — and neither should the government.
We in the labour movement have sat across the bargaining table from many of these energy corporations — and we’ve seen these kinds of threats and ultimatums before.
Based on that experience, we feel the question the premier should be asking is not: “Would job losses be bad?” Of course they would be. The real question is: “Are the threats being made by industry credible?”
Looking at the world energy market and Alberta’s increasingly important role in it, I think it’s clear that Big Oil would never leave the province — even if all of the royalty panel’s recommendations were implemented.
They won’t leave because what really matters when it comes to investment decisions is price — and the price for oil is clearly going nowhere but up.
They won’t leave because other oil-producing jurisdictions have also been raising their royalty rates — often much more dramatically than what’s being proposed here in Alberta.
They won’t leave because the royalty panel’s recommendations aren’t really that radical — for example, they keep in place the infamous penny-on-the-dollar royalty for oilsands and guarantee that more than
80 per cent of gas wells will pay lower royalties at current prices.
Finally, they won’t leave because about 80 per cent of the world’s proven petroleum reserves are under the control of national oil companies — and thus out of reach for Big Oil. Unless they want to get out of the oil business altogether and start manufacturing toothpaste, Alberta is one of the few places left for them to invest.
Taken together, all of this is called bargaining power. If anyone is over a barrel, it’s Big Oil.
Alberta’s bargaining position is so strong, in fact, that we should ask for more than what was proposed by the royalty panel, not less.
One obvious target would be the one-cent oilsands royalty, which is an unnecessary incentive when oil is trading at $90 per barrel. Another target could be the panel’s proposed “upgrader royalty credit.”
Most Albertans agree that steps are needed to stop unrefined bitumen from being shipped to upgraders and refineries in the U.S.
But is the best way to encourage domestic upgrading really to provide billions of dollars in public subsidies to developers?
Wouldn’t it be cheaper and more efficient to simply impose export regulations favouring local upgraders, as Lougheed did in the 1970s to promote the development of a homegrown petrochemical industry?
The bottom line is that even if the government acts aggressively on royalties, Big Oil will continue to invest in Alberta because there’s still lots of money to be made — and because there’s nowhere else
for them to go.
Playing this kind of hard-ball with the province’s dominant industry may make some people feel a little queasy.
But it worked for Lougheed in the ’70s, it worked for Alaska’s Republican governor last year, and it’s working for Newfoundland’s Conservative Premier Danny Williams right now.
So instead of dismissing the royalty panel’s proposals as unwarranted “government intervention,” Albertans should look at them for what they really are: good business and the bare minimum we should accept for the sale of our assets.
Calgary Herald, Wed Oct 24 2007
Byline: Gil McGowan