Canada: Lament For A Pipeline

Last Updated: December 20 2018
Article by Bernard Roth and Michael Hurst

We are used to reading news of the Organization of the Petroleum Exporting Countries (OPEC) curtailing production to address low oil prices and, more recently, it acting in concert with Russia to do so. However, when Alberta announced that it would be curtailing production in 2019 by up to 325,000 barrels a day (more than 8 percent of Alberta's total oil production), to be borne by producers with production greater than 10,000 barrels a day, it came as somewhat of a surprise. The cuts are not small on either a relative or an absolute basis, keeping in mind that global oil production is roughly 100 million barrels a day, with Alberta producing approximately four million barrels of that, while OPEC and Russia combined produce approximately 40 million barrels a day.

Alberta has a long history of considering and, in some instances, implementing oil production cuts, although the motivations have been different in each case. In the 1930s, on at least two occasions, the Alberta Government sought to restrain production. In 1950, faced with oil production that exceeded available pipeline space and refining capacity, Alberta's regulator stepped in and mandated maximum allowable production from oil wells. More recently, and most famously, Alberta resorted to legislative authority to curtail production in response to the National Energy Program (1980) (NEP), to address a federal government program that imposed a national oil price for oil consumed in Canada, which was lower than the world price by approximately CA$20 per barrel. One intent of the NEP was to redistribute the economic benefits of Alberta's oil and gas production outside of the province. The threat of curtailing production was sufficient to facilitate executive agreements between Alberta and the federal government on pricing. Alberta cut production by 120,000 barrels per day between March 1 and September 1, 1981, and withheld approval of new oilsands projects. Now, almost 40 years later, we find ourselves in a similar position, with Alberta having announced a proration scheme to address price differentials, this time caused by government intervention in oil pipeline markets. This government intervention resulted from years of persistent intervention by environmental groups trying to stop pipeline development in order to affect government policy changes on climate change. To address the challenges presented to pipeline development, oil and gas producers, acting with the pipeline industry, invested billions of dollars pursuing multiple pipeline options. The first was Keystone XL, followed shortly by Northern Gateway and then Energy East.

Keystone XL was the first pipeline to be delayed and later stopped by a decision of the President of the United States, largely, if not exclusively, as a result of environmental groups successfully employing their climate change strategies. The next pipeline proposal stopped was Northern Gateway, again for political reasons, but this time with the apparent intent on the part of Canadian governments to acquire social licence for the third pipeline proposal, TMX. This strategy of acquiring social licence was fraught with risk, which has now manifested itself. When the Joint Review Panel hearing of the Northern Gateway Pipeline Application recommended its approval, the in-service date for the 580,000-barrel-a-day pipeline was late 2018. TMX was the next pipeline application in the regulatory process and was almost two years behind Northern Gateway. Denying Northern Gateway did not provide the social licence sought. Social licence is an elusive concept, which, in addition to being undefined and not understood, would have never been granted by the parties insisting it was needed in the first place. The opponents of Northern Gateway insisting social licence was needed, continued their fight against TMX and were successful, first, in getting the private proponent of the project to stop construction, and second, after the federal government acquired the pipeline to deal with the first problem, the courts ordered a delay of construction to remedy flaws that were found in the regulatory and consultation process for TMX. Finally, the regulatory uncertainty prevailing at the time, and which continues to prevail, caused the proponent of the Energy East Pipeline to give up on that project after spending CA$1 billion developing it, rather than facing evolving regulatory expectations that would only result in a regulatory approval, which was still considered to be subject to obtaining a social licence.

The measurable financial impact of the NEP would be relatively insignificant when compared to the most recent example of government intervention in the pipeline market. In the case of the NEP, oil prices collapsed shortly after its implementation, making it difficult to ascertain, with any degree of certainty, which of Alberta's economic challenges faced throughout the 1980s were attributable to the NEP. This quantification issue does not, however, exist in the context of pipeline capacity constraints caused by government policy. Both the Alberta and federal governments appear to agree that pipeline capacity constraints are currently costing the Canadian economy (oil producers, the Province of Alberta and the federal government) between CA$80 and CA$100 million dollars a day, which amounts to CA$3 billion a month or CA$36 billion a year.

Stopping pipeline development has proven to be far more costly to the Oil and Gas industry than carbon tax. The lack of pipeline capacity comes out to CA$500 a tonne, when equated to dollars per tonne of GHG emissions associated with Alberta's oil production. For comparison, the federal government's proposal for a carbon tax currently reaches a maximum of CA$50 a tonne.

In the face of these costs, the desire on the part of Alberta to do something is understandable. However, the solution of production cuts to be borne by the Oil and Gas industry does not come without costs of its own, especially where they are not evenly distributed. Beyond the issue of creating a corporate exemption for the first 10,000 barrels a day of production, Alberta's integrated producers, who have invested heavily in building or acquiring, upgrading and refining assets, both in Alberta and throughout the United States, to facilitate development of Alberta's resource, will incur these costs without any associated benefits of curtailment. An approach that socialized the cost of curtailment would have been fairer and could have avoided placing future investments in the development of Alberta's resources at greater risk. In a worst case scenario, mitigating the political risk that created the pipeline capacity problem, and the political risk that manifested itself in the production curtailment solution, could include conditions on future capital investments, such as having governments agreeing not to legislate creative solutions to problems they cause. 

These types of conditions include production and royalty agreements governed by foreign (rather than Alberta) law, with disputes being arbitrated by international bodies rather than Alberta courts. This is common in the case of states that do not have a strong history with the rule of law and the protection of individual rights. It would, however, be new to Alberta. We do not expect it to get to this. Canada has long been viewed as a good place to invest, by virtue of political and fiscal stability, the rule of law and relatively transparent regulatory processes. We do not want to get to the place where the existence of this is called into question to the point where industry players ask, "Can we do projects in Canada any more?"

About Dentons

Dentons is the world's first polycentric global law firm. A top 20 firm on the Acritas 2015 Global Elite Brand Index, the Firm is committed to challenging the status quo in delivering consistent and uncompromising quality and value in new and inventive ways. Driven to provide clients a competitive edge, and connected to the communities where its clients want to do business, Dentons knows that understanding local cultures is crucial to successfully completing a deal, resolving a dispute or solving a business challenge. Now the world's largest law firm, Dentons' global team builds agile, tailored solutions to meet the local, national and global needs of private and public clients of any size in more than 125 locations serving 50-plus countries.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances. Specific Questions relating to this article should be addressed directly to the author.

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

Similar Articles
Relevancy Powered by MondaqAI
Borden Ladner Gervais LLP
In association with
Related Topics
Similar Articles
Relevancy Powered by MondaqAI
Borden Ladner Gervais LLP
Related Articles
Related Video
Up-coming Events Search
Font Size:
Mondaq on Twitter
Mondaq Sign Up
Gain free access to lawyers expertise from more than 250 countries.
Email Address
Company Name
Confirm Password
Mondaq Newsalert
Select Topics
Select Regions
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of

To Use you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.


The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.


Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions