Day 1 issue: Yukon’s oil and gas industry on life support

The newly elected Liberal MLAs will have enjoyed their victory party Monday night. Many of them battled for months in tightly fought contests in their ridings.

The newly elected Liberal MLAs will have enjoyed their victory party Monday night. Many of them battled for months in tightly fought contests in their ridings.

But politics seldom sits still and lets newly elected cabinet ministers ease into their new jobs. Deputy Ministers seem to delight in finding Day 1 issues to ruin the fun. It can feel like buying a fancy new house, then moving in and finding pungent black goo gurgling up out of the foundation.

One such Day 1 issue is the Yukon’s oil and gas industry. Largely missed in our election hijinx was the announcement by one of the world’s largest oil companies that it was pulling out of the Yukon. On October 26, the Wall Street Journal reported that China National Offshore Oil Corporation (CNOOC), a Chinese state-owned oil giant with about $100 billion in annual revenues, had sold off its majority stake in Northern Cross.

Northern Cross has been operating here since it was founded in 1994. According to the company’s investor presentation, “following a significant equity investment from an affiliate of CNOOC Ltd. in 2011, Northern Cross embarked on an ambitious exploration program involving drilling four wells and new seismic data acquisition at Eagle Plain.” It has spent over $100 million since 2011 on its Yukon properties.

But, as the Wall Street Journal informed the global investment community, “Northern Cross hasn’t been able to secure needed government approval in the face of strong opposition from environmental groups. The fate of the project, which is currently in limbo awaiting permitting, may hang on the outcome of a federal court ruling expected early next year.”

Northern Cross has sued YESAB over the latter’s failure to make a decision on its proposal to drill 20 test wells. Its president, Richard Wyman, went on to tell the Journal that the Yukon is “not exactly the most business-friendly environment.”

To understand why this is important, we need a bit of history. Back in the 1990s, NDP Premier Piers McDonald pushed for early devolution of oil and gas resources to the Yukon. The NDP did the first land disposition for oil and gas exploration, which was followed by subsequent dispositions by Liberal and Yukon Party governments. Governments of all three parties enjoyed the $46 million in royalties that came from the Kotaneelee gas fields in Southeastern Yukon over the years, and there was broad political support for a well-regulated energy industry to be a part of the Yukon’s economic diversification strategy.

It hasn’t turned out that way. The Kotaneelee has stopped producing. EFLO Energy, the company that owns the rights, has seen its share price fall from over $3 in 2012 (prior to the fracking controversy here) to less than 1 cent this week. Northern Cross is in limbo.

We have spent untold millions on large teams of officials over the last twenty years to foster the development of a local oil and gas industry. But now we probably have far more government officials regulating the industry than we do people working in it.

The Day 1 issue for the new Liberal government is what to do about this, and whether they want the Department of Energy, Mines and Resources webpage on the history of Yukon oil and gas to say that the industry finally faded away during their mandate.

They said during the campaign that they were in favour of conventional oil and gas development, but against fracking. They also said they would ban Yukon natural gas (indeed, all natural gas) from being used by independent power generators supplying the Yukon grid. This puts them well to the left of the Alberta NDP on these topics. Fracking continues in Alberta under Premier Notley, and it is inconceivable that she would ban generators using Alberta natural gas.

They have three choices. The first is to stick to their platform, maintaining theoretical support for conventional gas while spending millions on the Department of Energy, Mines and Resources (EMR) and YESAB. This is the “pretend and pray” strategy. You pretend the Yukon is still open for oil and gas business, and pray that Northern Cross’s court case goes away and that someone finds some miracle gas that is both highly economic and environmentally uncontroversial.

This is probably the politically easiest strategy. It costs you a few million bucks a year maintaining government departments going through the motions managing a comatose industry, but doesn’t require you to make any controversial announcements.

The second option is to make a clean break with the past. They could say that we don’t have pipeline infrastructure, global gas prices are low, the industry is unpopular, and that they are shutting down the E part of EMR and transferring the money to support the tourism and high tech industries. The downside of this one is that Yukoners will keep spending around a quarter billion dollars a year creating oil and gas jobs in Alberta and BC, but this doesn’t seem so bad to voters since we’re used to it.

The third option is to give a strong mandate to the new minister of EMR to figure out what isn’t working at YESAB, and work out a way to use Yukon oil or gas to replace some of the over 200 million litres of petroleum products we import every year, and get the industry off life support. The downside is that this likely involves ditching that campaign commitment not to let independent power producers use Yukon natural gas.

It’s a tricky decision. The only consolation for the new minister of EMR is that he or she isn’t in the Day 1 briefing about the territorial budget.

Keith Halliday is a Yukon economist and author of the MacBride Museum’s Aurore of the Yukon series of historical children’s adventure novels. He won last year’s Ma Murray award for best columnist.

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