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Lethbridge Herald, The (Newspaper) - December 27, 1973, Lethbridge, Alberta Dtttmbvr LETHBRIDQE HERALD-5 Macdonald and Lougheed discuss Canadian oil situation By THE CANADIAN PRESS Signs of moderation and a willingness for understanding in the federal-provincial dis- pute about energy reserves come through in separate interviews by The Canadian Press with the two persons chiefly Energy Minister Donald Macdonald and Premier Peter Lougheed of Alberta. speaking for a province that produces about 85 per cent of Canada's calls for co-operation between the federal and provincial governments on energy although re- stating his stand that natural resources are owned by the provinces. He says he doesn't want to expect too much from the fed- eral-provincial energy confer- ence in January but is a possibility that there could be some agreement on goals and the conference is called to establish goals and objec- tives on a long-term energy basis for Canada then it might be Mr. Macdonald says the energy debate has seen a amount of political But he says Mr. Lougheed has demonstrated 1 'quite a bit of restraint in the last several weeks when there have been policy changes at the federal Mr. Macdonald says a basic difference of opinion still ex- ists between various parts of Canada on the price of Cana- dian oil and this remains the problem of all. Here is a transcript of the two interviews with CP Energy Minister Donald Macdonald Energy Minister Macdonald Q. Several figures have been quoted on potential oil short- ages this winter in Eastern Canada. What is the hardest estimate you can The interrup- tion at the moment would be about barrels a day and the down the worst we is a shortfall of about The Arabs have cut production by 25 per cent and indicated they will go to 30 per cent. Being cautious and prudent I think we'd have to adhere to our original figures on shortages. Q. The Shaheen refinery at has been a matter of controversy. The operators say it will be Tunning soon and producing 100.000 barrels a day. You've i questioned this statement. It's obviously a difference of opinion among technical people. But it's not thought that it will be operating fully before the end of the first quarter of 1974. It's possible that some products may be available in the mean- time that could be used in Canada. We have to wait and see how much help it will be. Q. What is the long-range outlook for heating oil and gasoline supplies to- wards the end of the refineries start emphasizing the production of motor gas- oline. Because of the pressure for heating oil this I understand there will be some difficulty shifting over in the normal time frame. So there is a prospect for a gasoline shortage when the fine weather comes. I haven't got an estimate on how much it will be. How long will it take for Canada to become self-suf- ficient in It's going to take a long time. for purely economic we may decide not to replace all imported oil with oil from Western Canada. It also depends on the Atlantic offshore. If we bring in sub- stantial supplies there or in the eastern we'll be able to move toward self- sufficiency more quickly. At what with the development of nuclear power does electricity become more economical than Macdonald I think we're there. Not just from a se- curity standpoint but also from an economic standpoint. Nuclear power is competitive. Does this endanger long- range development of the northern Alberta oil I don't think so. Electricity supplies a lot ol our heat and a lot of industrial power. But at the moment there is no real alternative to oil as a propulsive fuel for vehicles. The long-range threat would be a substantial move away from gasoline engines to perhaps some kind of efficient -electrical car. Q. The energy debate has pointed out some fundamental differences in viewpoint be- tween Ottawa and Alberta. Is there a good working relation- ship generally with the prov- inces' I think there has been but there's a cer- tain amount of political jockeying involved in the thing. I noticed on CBC Premier Blakeney saying that we've made it clear for the first time that we intend to give the producing provinces 50 per cent of the proceeds from the export tax on crude oil. I told his minister that in September at Victoria. And I told him the same thing three weeks before when he was sitting right here in this office. So there's a certain amount of public posturing that goes on. It doesn't fully indicate the degree of con- sultation that takes place. In recent Premier Lougheed of Alberta has been less outspoken about federal energy policies than 1 he was earlier in the fall. Do you think he's under pressure at home to accept the federal I don't know. He's demonstrated quite a bit of restraint in the last several weeks when there have been policy changes at the federal level. I can't really speculate why. Q. What do you make of Prime Minister Trudeau's re- cent criticism of Premier Lougheed. The prime minister was setting out some federal viewpoints I think he was really talking about the previous style of the Alberta government going off in spendid isolation and talking boycotts and like. Tie was commenting on the old style and I think that's fair. There seems now to be a new style. Whether there's a new style because of the realization that the old style was a bit of an embarrass- ment to I don't know. What would happen in a federal election Could you sell the federal viewpoint on how the country's resources should be It depends on what part of the country you're in. it could be sold in the consuming provinces. It would be rather difficult in Alberta. In terms of national un- what would be the im- plications of an Ottawa- versus-Alberta election cam- I think it would be desirable to avoid that. That's why it's a desirable thing that we're not going to have an election this unless the opposition parties decide that we should be plunged into an election on this issue. Does it bother you that you happen to hold the energy portfolio at a time when it seems the whole roof is caving Oh not at all. If you're going to be in public it's far better to be in at a point where there's interest and challenge. And there's been a certain degree of particularly in the past three months. I think the pressures will continue at least until the middle of next year. Your credibility has been called into question by some people. How do you react to such When it comes from members of the opposi- tion like Peter Bawden servative MP from Calgary and an oil I think it's only a reflection of having nothing substantial to say. I really don't expect very much more. Sometimes you take positions and events force you to change. The massive price increases this fall have forced us to change the timetable for moving to an international oil pricing system. I don't think there's any real choice. That's reality. Some people see a Jekyl- and-Hyde aspect to your char- acter. They often give you high marks for your ad- ministrative performance but criticize you on political grounds for some of the spur- of-the-moment things you've done or as walking out of a recent Calgary televi- sion interview. I think it's just personality. I'm not a bland personality At times when I'm as the Calgary station double- crossed I get angry. I think most human beings would. I must in reference to that I've had letters from a lot of people who were delighted to see me do that. I think it's fair to say that there's a sizable body of opinion that would like to see the media get a good swift kick in the pants. Oil industry spokesmen say federal policy changes have made things so unattrac- tive for business that oil ex- ploration may decline seriously. Is this the It's difficult to read that one. When the federal white paper on taxa- tion came down a few years there were widespread predictions that the Canadian oil industry would die and that everybody would emigrate. that didn't happen. And now the president of the Cana- dian Oil Well Drillers Associa- tion is saying that 1974 looks like the best year ever. So there are conflicting it remains to be seen. Some of the negative predictions have to be regard- ed as a certain amount of cor- porate bluffing of the kind we had with the tax bill. There is a degree of posturing here. The government has made a number of fundamen- tal policy changes that the in- dustry obviously doesn't'like. Can the oil companies ever again expect the sort of business climate they had in the There are some new elements involved arv4 new elements always change a situation. But I would an- ticipate that industry would continue to have an excellent basis for operation. Government regulatory action in Canada has been very much less than in other parts of the world. The direction of Cana- dian energy policies affect pur relations with other particularly the United States. Will conflict here spill over into other areas such as the auto I regard our relations with the U.S. as not so bad at the moment. There is a certain amount of friction on particular trading commodities. From northern for when we take action to protect oil supplies in the Canadian market. You have to sort that kind of friction out from the over-all view that has been ex- pressed by both we'll look after the national interests of each country but at the same time try to minimize the dam- age. Does the American aim of energy self-sufficiency by 1980 have a bearing on the proposed Mackenzie Valley natural gas I think it's very relevant. I'll be seeing Presi- dent Nixon's new energy William in late week after the federal-provincial energy conference. One of the impor- tant questions is when they talk about being indepen- dent of any no matter how this relates to Canada. If they in- tend to seek independence from Canada in this we'll have to look at projects like the Mackenzie line and decide should do it at this time. There has been a certain amount of skepticism about the ability of the U.S. to attain that kind of independence by 1980. International oil prices have shot up drastically in re- cent months. Will they come down in the I don't think so If you were a policy maker in Venezuela or Saudi there would be no reason to bring them down. But that's not to say they will go up for ever. There is an upper level. If the industrialized par- ticularly the are pressed too the economic basis for using competitive fuels will open up. if the U.S. carries on its drive for energy it would restrict the ability of the oil- producing states to keep putting the price up. Prime Minister Trudeau has said the Canadian economy is flexible enough to cope with an oil shortage. Do you expect the economic im- pact to be I can't be sure. It depends on how long it lasts. Probably the greatest threat will be the impact of shor- tages on our customer countries. They may suffer slowdowns in will mean less demand for Cana- dian products sold on the world market. In some sectors of the econ- omy such as there is no doubt that we will be af- fected if shortages continue next summer. Has the crunch passed as far as your work is Is it easier perhaps than a month tt will certainly be a pretty important milestone to try to come to. some national consensus on long-range pricing for oil. We have substantial reserves and potential reserves and some Canadians feel the prices should be below world levels. But the produc- ing provinces feel entitled to world-scale returns. This is a very basic difference of opi- nion between various parts of Canada. If we can reconcile this I think many of the other problems will be much easier. The pricing problem really has to be regarded as the most difficult. Alberta Premier Peter Lougheed What do you see as the short-term solution to or any energy crisis in and how about the I don't really be- lieve we've got a short-term because the energy crisis is really only in the area east of the Ottawa Valley and their problem is a distribution problem. In the absence of a Montreal which we've been proposing in Alberta from 1959 and as late again as don't think we really can meet any shortages to the extent they exist in that area. If we had a Montreal and I think we could have had one perhaps almost by now if they had acceded to our proposal of last January to build then I think we would have been in a position that the balance of the area Atlantic could have been served by Nigerian and other sources. We've increased the amount of exports to the United States from about 000 barrels a day to about a million barrels a day. I think that a certain amount of diversion of that exported crude to Montreal could have been accomplished this year. You only have to go back two years to look at figures of 000 to barrels a day in the Chicago area and I think that was the position of crude that they were relying upon there could have been that if the pipeline had been built this of at least barrels a day into and that would have been far more than I believe the actual shortages really are. The long-term situation is a combination Of threw nr four different situations. assur- ing that fair value is obtained and that there's not bargain- basement prices with regard to things like natural and that we put together natural crude electricity and have a national energy policy that deals with that in a way that we have proper allocation of our available resources. There's just no reason why Canada can't be self-sufficient in energy requirements. That of course involves improvement in the distribution more realistic pricing and certainly significant incentives to ensure that new discoveries occur. Q. Do you feel the federal government would have to as- sume greater control over energy We're involved in a federal state. The provinces own the natural resources. It has to be a matter of co-operative federalism and I think that's unequivocal and a clear and specific part of our con- stitution. It's the same in many other areas. If you're talking about health care in Canada you're not going to have health care appropriate- ly worked out in this nation unless you have co-operation between the 11 governments involved. The same in the energy situation. Q. Should Eastern Canadians have first call on Alberta's crude oil to the ex- clusion of all exports to the U.S. in the event of a serious energy pinch in I think you can answer that unequivocally yes. But the yes has to be predicated on the fact that if you say for example long-term natural gas with the U.S. as a result of failures of national policy in Canada to utilize those natural the natural gas in Eastern we invite the possi- bility of retaliatory action by the U.S. don't think there's any way it needs to be necessary. In other I think that quite clearly if we're involved in a situation where about barrels a day are being imported and there's a problem with about barrels a day there's plenty of room for diversion without getting into the area of serious reductions in the area of the mid-westem part of the U.S. I think that we may find that the Puget Sound area in terms of market for Alberta crude might be met from Alaska crude from Prudhoe Bay and diversion there may be less ol a concern to the U.S. But an extreme amount of diversion from those states who are good friends of Canada in the mid-western states around Chicago can have some adverse impacts upon Canada- U.S. trade and would be un- necessary in my view. .You have called per- sistently for a national energy policy conference. The prime minister now plans one in January. what would you want such a confer- ence to Longer term policies and not short-term BandAid locating the various energy sources to the various re- assessment of our ability to provide encouragement for finding new supply process- ling in Canada and ap-stream. We don't go into it with any false expectations. We ap- proached the western economic opportunity with a real effort to present positive positions and we were disappointed with it. Certainly we don't want the citizens of Alberta to expect that a great deal is go- ing to come out of a conference of that nature. There is the possibility that I m '111 I I I I I I f II I I there could be some agree- ment on goals and though. It depends on how the conference is handled. If the conference is handled on the basis that the concentration is involved in the problems of short-term supply dislocation as a result of the weaknesses of our distribution I don't think it will be that productive a conference. If the conference is called to es- tablish goals and objectives on a lone-term energy basis for iCanada. then it might be productive. Is provincial control and ownership of natural resources in danger in the light of federal moves in re- cent months in the energy field7 Can you foresee such control and ownership ever reverting to Ottawa in the national The answer to the first question is clearly yes. The answer to the second question is clearly no. The under Section 109 the oFitiSh North AmcriCa rests with the provinces. They can't change the con- stitution unilaterally. We've got a federal state and it was established on the basis that the provinces control the resources. If you have the federal government in control of the all we'll have happen in my view is that the central region will get richer and the outer regions will get because the decision will be made on votes and not in terms of regional develop- ment. Alberta's position is that it wants a fair price for its natural resources. What con- stitutes a fair both natural gas and crude the export and domestic Who should deter- mine the What do you think of Ontario's suggested three-price system for ex- Of a two-price world-market price for exports and a lower price for domestic I think you have to look at something like lumber prices. Who deter- mines lumber It's the combination of market of supply and demand. It's a combination of the factors of demand relative to the cost of house to the cost to the consumer of Canada in terms of paying a great deal more for the home as the price of lumber goes up. This is the whole nature of Con- in that the areas and regions of Canada have been involved in selling their both renewable and non-renewable in terms of a world-market and we certainly think there shouldn't be discrimination against Alberta. If there is going to be dis- crimination against then are we going to find our- to be fair in with two-price systems for for everything we If we have an entirely two-price system across all of our what does that mean in terms of us as a trading in terms of and what's the reaction of our export The owner makes the final the owner of the zinc the owner of the lumber tract or the owner of the gas and oil. It happens to be the case in Alberta that 80 to 85 per cent of the gas and oil production is owned by the government. I haven't any objection a three-price If there are circumstances where an opportunity price exists in the U.S. for say our natural gas or our we've got provisions our provincial Marketing Commission Act to take ad- vantage of that situation. But it requires agreement from the federal government and whether we'll get it or not I don't know. Will Alberta observe the federally-imposed price freeze on petroleum products past Jan. Do you foresee the possibility of Ottawa try- ing to keep the freeze on even past the winter We haven't made a decision on that yet. I couldn't speculate. I have difficulty speculating on what they're going to do tomorrow. Undoubtedly you want to reach an amicable accom- modation with Ottawa on but if worst comes to worst are you prepared for a constitutional battle in the high courts if you feel you have the support of the Alberta people for T Hrtn't fhinlr uv-m I'm at the stage that I feel it's necessary to answer that yet. We're still carrying on dis- maybe the next few months might see some day- light. What can be done to re- vitalize the Canadian coal in- major part of which is based in help conserve other sources of There were in- dications earlier that the pro- vincial government was going to introduce a new coal roy- alty and new guidelines for production. One of the most helpful things that could be done for the coal industry would be for the federal government to assure that the Canadian transport commis- sion directs the national railways to ship coal at a freight rate cost from Western Canada to Ontario to replace our importing 18 million tons a year from the United i3 million tons for electric generation in On- tario by Ontario Hydro. in one would do quite a bit to revitalize the industry. What does Alberta hope to gain by establishing a crude oil marketing We don't like to be in the because it is so important to that the prices for crude oil are set by others. Up to this they have been established es- sentially by the integrated major companies and Imperial Oil in particular. We have so much at stake in terms of it that we feel we have got to be in position as the owner-lessor to establish the prices. Probably it will be extended to synthetic crude oil in the spring and maybe to natural gas. In natural gas there is some complication because you have got long- term contracts. We have to do some more assessment as to our legal position. Would Alberta accept a staging in of price increases to even out the impact on the Ca- nadian consumer of rapidly escalating world prices of crude If the Cana- dian consumer is going to ask us to do surety the Cana- dian essentially the ones in Central Canada who have been the beneficiaries of transportation policies and tariff policies to the detriment of the should be coming back and saying if we're going to ask Alberta to do we should at the same time be saying maybe it's time for us to be making some really significant adjustments in those two ;