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The first reaction of the oil companies to the NEP was that they would have to review their spending plans. B.C.'s energy minister, Bob McClelland, said it was all a "disaster" and "a betrayal of the West." Lougheed's response was more action than words and was swift in coming. Alberta began to cut its oil production by a planned 15 percent in three stages over the next year. Approval of further oil sands development was withheld. A legal challenge to Ottawa's authority to impose an excise tax on natural gas sales was planned. But, as in the 1970s, the demands of reality compelled compromise and settlement. The country needed petroleum resources developed, not shut in. Ottawa needed money. Alberta could only suffer by cutting
back its oil production.
Alberta's production cutbacks and oil sands restraint were removed within a year by another agreement. In the five-year pricing and revenue sharing agreement signed by Lougheed and Trudeau on September 1, 1981, 10 months after the NEP announcement — with similar agreements signed with British Columbia on September 24 and with Saskatchewan on October 26 — there were dreams of gushing oil wealth for everyone. It was based on projections by the bureaucrats in Edmonton and Ottawa that world oil prices would keep climbing at a rate of 13 percent a year. The controlled price for Canadian oil would be capped at 85 percent of the world price. This would yield production revenues of precisely $212.8 billion during the five-year term of the agreement. The federal government would get 25.5 percent, Alberta would get 30.2 percent, and the oil companies would get 44.3 percent. "I regard the agreement as a triumph of the Canadian way," Trudeau later wrote in his memoirs. "Lougheed and I toasted the agreement with champagne and publicly agreed that it was good for Alberta and good for Canada."
They were dreaming in Technicolor. Even before Lougheed and Trudeau tasted their champagne, oil prices had started falling. In March, OPEC had cut its prices by $5 a barrel, and an increase in the price for Canadian oil scheduled for July had been cancelled.
"What became of the energy crisis?" the Petroleum Economist asked a month after the champagne celebration.3 Plenty. High prices, off-oil switching by consumers, and the worst recession to hit the Western world since the 1930s had reduced world oil demand by more than eight percent in two years. Large new oil supplies in the North Sea, Alaska, Mexico, and elsewhere had loosened OPEC's monopoly grip and its ability to seemingly command what it wanted for its oil. Inventories of oil, bulked up because of jitters over possible further disruptions to Middle East oil supplies, were now being drawn down at rates up to four million barrels a day, adding more downward pressure on prices. Instead of climbing to $80 a barrel as bureaucrats, banks, and petroleum borrowers expected, the price of oil was on a steady eight-year skid from nearly $45 to $19 per barrel.