New Alberta Policy On Natural Gas Designed To Speed Process Of Boosting Field Values, With Rebates For Albertans

By: CARL O. NICKLE, Editor Emeritus, Daily Oil Bulletin

Alberta Premier Peter Lougheed announced Thursday the Government's Policy on Natural Gas. It is a frank statement of Alberta public interest in one of its key resources, designed to ensure a speedup of the process of gaining for the Province full competitive worth of Alberta gas. It is not - as some advance news stories had implied - an immediate confrontation between Alberta and the masses of consumers in Canada and the U.S. that would or could sharply overnight raise costs to consumers. But the Policy makes clear that there will be no "bargain basement pricing" on future gas purchase contracts, and that existing contracts had better be adjusted by buyers and sellers to better reflect realities of worth. That process is already underway, and must be accelerated.

Mr. Lougheed has made a decision that Albertans should have a two-price system for natural gas, a plan to offset for Albertans' most of the impact of increased prices for this resource of which one-sixth is used within the Province, and five-sixths is exported. All field prices for gas will be guided towards full competitive worth, but the portion of supply used within Alberta will enjoy the benefit to consumers of a "rebate system" whose details are still to be worked out.

As the Premier states it, the Alberta rebate system would be designed to shelter residents, commercial establishments and industry from the effects of significant gas price increases caused by the increasing value of Alberta gas in markets outside the Province.

What Alberta wants is higher field prices for Gas, based on competitive worth in the marketplace, and it wants sellers and buyers to speed process of re-negotiating existing contracts between themselves. The Government agrees with the recent report on detailed examination of gas pricing and the public interest made by the Alberta Energy Board, which concluded that current average price in the field of 16 cents per MCF is actually 10 to 20 cents below competitive worth.

The Energy Board had suggested those gas producers and gas buyers get moving negotiations and that the Board report on progress to the Government by December 1974, with the Government meantime not intervening directly in such contract re-determination. Mr. Lougheed this week speeded the timetable. His government wants a progress report from the Energy Board by April, 1973, and annually thereafter, and in addition a constant tracking of pricing provisions by the Board for the confidential use of the Board and government representatives.

Mr. Lougheed states his view that price re-determination in contracts should occur every second year, in place of five year period in many existing contracts, and no provision for adjustments in others. I might point out here that one major buyer of Alberta gas, serving mainly a California market, had already volunteered a two year price re-determination in place of five some months ago, and has so far made this adjustment in negotiations with four of its Alberta suppliers, in addition to sharply boosting current price paid.

The Premier now states the government is prepared to provide producers and buyers an opportunity to review, re-open and amend existing contracts which do not contain satisfactory price re-determination provisions. His government urges acceleration of negotiation on all subsisting contracts - placing the onus of action clearly upon all buyers of Alberta gas.

The Policy Statement notes that Alberta has held in abeyance, since taking office, approval of permits for increased export of gas from the province, pending its review of policies. The principal pending Alberta export bid is that of Trans-Canada Pipelines, to augment supplies to Eastern Canada and the U.S. Great Lakes Region. To gain export approval from Alberta for the additional supply Trans-Canada will have to satisfy the province that price terms reflect competitive worth, now and in the future. So too will any other buyers for export.

The Alberta Policy will obviously result in a progressive increase in both field worth and export cost of Alberta gas. The impact on consumers outside the province will be in stages, as more and more volumes of gas become subject to higher field prices. By the time Arctic gas reaches North American markets, the price in Alberta will hopefully be at a level reflecting new competitive worth. In general, the same principle will apply as the continent adjusts to costs of supplies of overseas gas. synthetic gas, and a rise in costs of oil, coal, and other fuels. But Albertans will in considerable measure be insulated from sharp cost rises by the consumer rebate system now proposed by the Alberta Premier.

As Premier Lougheed puts it, the Alberta Policy Statement is not only in the "best interests of Albertans, but benefits all Canadians as it is an appropriate forward step in developing a new national industrial strategy based upon growth." He summarized what his Government Policy statement means to Albertans. in these words:

"Albertans' fuel costs will be the lowest in Canada. AIbertans through their government will start to receive a fair price for their natural gas taken out of the province. Alberta's economy will become more competitive with the rest of North America, and this should improve job opportunities for Albertans. And, finally, it means improving the prospects of finding the yet undiscovered new gas reserves in this Province as an asset for our people."