How Ottawa runs on oil

Suddenly Western money and influence are driving everything that happens in the nation’s capital
Paul Wells and Tamsin McMahon, with Alex Ballingall
How Ottawa runs on oil
Chris Wattie/Reuters

In July 2006 Stephen Harper had been Prime Minister for half a year and it was time to deliver his first speech to a foreign business audience. He picked a friendly crowd, the Canada-U.K. Chamber of Commerce in London. He told them British investors were taking notice of “Canada’s emergence as a global energy powerhouse—the emerging ‘energy superpower’ our government intends to build.”

Canada, he said, was the world’s fifth-largest energy producer, ranking third in gas production and seventh in oil production. Canada was the world’s largest supplier of hydroelectric power and uranium. “But that’s just the beginning.”

There was “an ocean of oil-soaked sand” in northern Alberta, more than in any country except Saudi Arabia. Getting it out would be “an enterprise of epic proportions, akin to the building of the pyramids or China’s Great Wall. Only bigger.”

Fast forward to late last year. The future Harper described in London had become a reality. The oil sands were producing so much oil that the biggest challenge was simply to get the stuff to market. Then on Nov. 10, U.S. President Barack Obama said he would delay approval of the Keystone XL pipeline for at least a year.

Harper allowed that he was “disappointed” with Obama’s decision. In fact he was furious. He flew to Hawaii for the Asia-Pacific Economic Co-operation summit and chatted with Obama at an outdoor picnic table under a beach umbrella. Reporters watching the exchange wrote that the two men looked relaxed and laughed more than once. “The leaders discussed the recent announcement regarding the presidential permit process for the Keystone XL pipeline application,” a White House press release said later.

You bet they did. What Harper was doing, behind the forced bonhomie, was writing the U.S. off as Canada’s only important energy export market. A senior Conservative source says that two days after the chat with Obama, at a meeting of cabinet’s priorities and planning committee in Ottawa, Harper handed out orders to a half-dozen ministers.

Energy exports were the government’s new top strategic priority. Asia, led by China, was the export market to target. Enbridge’s Northern Gateway pipeline to the seaport at Kitimat, B.C., must get built. Environmental assessment for that project and dozens of others must be streamlined. Reconciliation with Aboriginal groups that could block those pipelines must be fast-tracked.

Much of what the Harper government has done this year flows from that tense cabinet meeting five months ago. The accelerated opening to China. The spotlight on rookie Natural Resources Minister Joe Oliver. The apocalyptic warnings about foreign money interfering with Canadian environmental decisions. The moves to weaken environmental protection for fish habitats. But Harper is not driving events so much as reacting to them, adjusting his game, seeking to draw advantage from a historic shift in the distribution of money, populations and political power in Canada.

That shift is changing everything. The extended boom in commodity prices, especially energy, has created a new cast of winners and losers in Canadian commerce. Populations have moved westward toward new opportunities. Regions with a weaker resource hand to play are paying for the shortcoming. Quebec is losing population to out-migration, yet even so, unemployment there is above the national average and climbing. And the upheaval affects politics too, strengthening both the western provinces within Confederation and the party with the strongest western base, the Conservatives, within Parliament. The Conservatives’ advantage is likely to increase.

“It really used to be that the Liberal party ruled Canada from Ottawa,” says historian Michael Bliss. “Its strength was in the belt between Montreal and Toronto and its idea factory was Queen’s University. Well, that’s pretty much gone now. The new map of Canadian politics has the Conservatives where they are and it has the new linkages stretching from Ottawa out to Calgary and Edmonton and Regina. The country has changed.”

Preston Manning helped found the Reform party in 1987 as a response to western frustration about economic clout that could find no national political expression to match it. “The shift in population, the shift in the percentage of GDP that is generated here, the percentage of exports that are coming from this western part of the country and the wealth that is generated is a big long-term phenomenon,” Manning said last week from Calgary. “The Laurentian region of Quebec and Ontario dominated the political scene for 140 years, but this shift is of the same magnitude as the old alliance. So if it’s done right and the markets continue and [the West] conducts itself responsibly on behalf of the whole country, not just on behalf of the region, I think it’s good for 100, 150 years.”

Carlos Osorio/AP images; Adrian Wyld/CP images

Of course it’s been true forever that Canada is rich in natural resources. Some estimates have put the total value of Canada’s natural resource reserves at $1.16 trillion, or $34,000 for every man, woman and child in the country. The value of the bitumen in the oil sands alone stood at $460 billion in 2010.

But now resources are even more important to Canada’s economy than they already were. First, because development of the oil sands has increased dramatically over the last decade. Second, because the rampant urbanization of China’s huge population has created unprecedented demand for exports of raw materials of every kind. Finally, because the rise of low-cost manufacturing in China and elsewhere has dealt a sucker punch to Canadian manufacturing.

Last year, stuff we dug out of the ground, chopped down or farmed made up 26 per cent of everything we sold to the world, up from just nine per cent in 1998. Over that same period, stuff we actually made and manufactured fell to around one-third of exports, down from more than half. Exports of natural resources, worth $119 billion last year, now account for a greater share of our outgoing trade than at any time in the last 40 years. While Canada enjoys a trade surplus of $73 billion in natural resources, the country is running a $100-billion trade deficit in manufacturing—a shortfall that spells serious trouble for central Canada.

Because many resources are concentrated west of Ontario, money and populations have been moving to match the new reality. Between 2002 and 2011, exports from Alberta and Saskatchewan more than doubled, while exports from Ontario and Quebec fell by one-tenth. Saskatchewan, whose economy has been particularly helped by the commodities boom, now collects more in taxes and fees from natural resource production than it does in personal income taxes. While the West still has a smaller total population than Ontario, the four western provinces together collect more in government revenue than Canada’s largest province.

The shift has reshaped our stock markets. Energy and mining companies accounted for eight of the country’s 20 most profitable public companies in 2010. That year, oil giant Suncor Energy earned $36 billion in revenues, more than either the Bank of Montreal or CIBC. And Calgary, home to one in seven major corporate headquarters, now has more head offices than Montreal.

Even more important than how corporate Canada has been remade, the very demographic makeup of our cities is changing. The combined GDP of the western provinces now surpasses Ontario’s and, like moths to a light, people have been drawn to that kind of prosperity, including new immigrants. Just four years ago, four out of every five newcomers to Canada headed to Toronto, Vancouver and Montreal. That’s fallen to three out of five as newcomers increasingly head to places such as Saskatoon, Regina and Winnipeg.

Last month, TD Economics predicted these trends will continue. Alberta and Saskatchewan will lead economic growth in Canada until at least 2021 with annual GDP growth averaging 2.4 per cent. Saskatchewan’s population didn’t grow for 17 years, but in the next decade it will grow faster than Ontario’s. “Quebec and the Maritime provinces will not only fail to make up ground over the next decade, but could actually see further slippage,” wrote TD’s deputy chief economist Derek Burleton and economist Sonya Gulateri. “The West will continue to reign supreme.”

That supremacy is increasingly reflected in the distribution of power in Ottawa. MPs from the four western provinces made up 24 per cent of government MPs when Brian Mulroney was prime minister and just seven per cent under Jean Chrétien. Now 42 per cent of Stephen Harper’s MPs are from the West. Western MPs chair half of parliamentary committees. An analysis of cabinets going back nearly 50 years conducted by Grey House Publishing, which produces the 150-year-old annual Canadian Parliamentary Guide, suggests Quebec in particular saw its influence wane. In the early 1960s, MPs from Quebec made up 19 per cent of cabinet, while B.C. and Alberta together accounted for less than 15 per cent. Today those two provinces have seen their representation jump to nearly 26 per cent, while barely one cabinet minister in 10 hails from Quebec.

In a government where the Prime Minister is a Calgarian, finding westerners in positions of clout is almost too easy, but let’s start with the three most influential unelected figures in Ottawa. Wayne Wouters, from Saskatchewan, is only the third clerk of the Privy Council in the last half-century who was born west of Ontario. Mark Carney, the governor of the Bank of Canada, is from Fort Smith, N.W.T., and was raised in Edmonton. Beverley McLachlin, the chief justice of the Supreme Court, is from Pincher Creek, Alta.

Of course you find the odd Quebecer or Atlantic Canadian in a key post. Lately they’re pretty odd. The uproar in Quebec when Harper appointed the bilingual Italian-English Torontonian Angelo Persichilli as his communications director was a response to a keenly felt loss of clout for francophones at the centre. But if you throw a brick down Sparks Street these days you’re likely to hit a westerner. Harper’s own office has, at various times, featured Albertans Darrel Reid and Mark Cameron in key policy roles, Saskatchewanian Kory Teneycke running the communications shop, and a steady stream of former University of Calgary profs and students, including Tom Flanagan, Ian Brodie and Ray Novak.

Jean Chrétien used to have a western desk manned by some hearty Albertan in an office mostly full of Montreal lawyers. Harper had to go out and beat the bushes, months after the 2011 election, to find former MP André Bachand as his Quebec adviser in a Langevin Block that otherwise serves as central Canadian regional headquarters for the University of Calgary Alumni Association.

Across the street in the House of Commons, a son of the prairie keeps the peace, such as it is. Andrew Scheer, the Speaker of the House of Commons, and MP from the Regina riding of Qu’Appelle, is the first Speaker from the Prairies in 48 years.

And in a town that runs on access and connections, western universities are among the most ardent lobbyists of the federal government. According to the federal lobbyist registry, the University of Saskatchewan has lobbied the federal government 232 times since 2008, the University of Victoria 108, the University of Alberta 105. In comparison, York University lobbied the federal government 86 times, McGill— mighty McGill!— just 28.

Increasingly in Ottawa, power isn’t just exercised by westerners, it is exercised in a way that reflects the increased clout of the resource-producing regions. In the United States, the pre-eminent school of political administration, at Harvard, is named after John Kennedy. In Ottawa, a new school that aims to play a similar role in public life is named after Clay Riddell, a Calgary oil baron who stands at 11th place in the latest Canadian Business Rich 100, with over $3 billion to his name. In 2010, at Preston Manning’s urging, Riddell peeled a few bills off his roll and tossed Carleton University its largest-ever gift, $15 million, to launch the Clayton H. Riddell Graduate Program in Political Management.

Now, the school’s aims are genuinely non-partisan. It frequently welcomes guest lecturers from the Liberals and NDP. But its core faculty includes Paul Wilson, Harper’s former director of policy, and André Turcotte, a former Reform party pollster. “Non-partisan” in Ottawa used to mean “Liberal in denial.” These days it means, “We’re hoping Laureen Harper will show up at the reception.”

Case in point. The windfall from the resource boom is greasing some surprising wheels in the capital. Every spring le tout Ottawa descends on the National Arts Centre for the Governor General’s Performing Arts Awards, where artists as diverse as Buffy Sainte-Marie, Rush, William Shatner and k.d. lang have been feted over the years for their contribution to the nation’s cultural life. These days the awards’ presenting sponsor is Enbridge, which replaced Bell Canada in 2010. This year’s laureates of the GG Awards were announced in Calgary because the NAC does so much fundraising there.

But while it’s fun to track western influence in Ottawa, it misses some of the story because the resource boom is hardly restricted in its effects to the western provinces. That’s a point Jim Prentice, the former Harper cabinet minister who’s now a vice-chairman at CIBC, tried to make when he spoke to the Toronto Board of Trade on March 1.

“You will find no other G8 country—in fact no other country in the world—that is bringing on infrastructure projects at the pace and relative scale of Canada,” Prentice told the Hogtown swells. “The investment is significant, close to $290 billion—yes that is billion—of investments over the next 20 years.” Prentice listed projects in seven provinces, including the Lower Churchill in Labrador, Manitoba’s Conawapa hydro project, and liquid natural gas terminals on the West Coast. “Any other liberal democracy would give their eye teeth for any one of these projects,” Prentice said.

But the news isn’t all good. Prentice’s list included no fun infrastructure projects for Ontario. Employment in Canadian manufacturing has fallen by one-fifth since 2004. Most of those losses have been concentrated in the country’s largest province, which is why Premier Dalton McGuinty complained in February that the high “petro-dollar” was hurting the province’s economy.

Prentice’s message to McGuinty: “Our dollar is not going to be in measurable decline any time soon. Those old manufacturing jobs aren’t coming back.”

By then, of course, McGuinty had received the same message, heatedly and in private, from many of his own supporters, which is why two days after he complained about petro dollars, he sought to stumble away from the remark. “It can be difficult in this kind of context to convey exactly what you want to say,” he said. “I work in real time, so sometimes I may not self-edit before I go to press.”

One person who could have reminded McGuinty that the resource economy has powerful stakeholders in Ontario is Sandra Pupatello. Until last year she was a minister in the McGuinty government. For years she represented a riding in Windsor, ground zero of the Ontario manufacturing collapse, in the Ontario legislature. Today she connects international investors to Canadian companies for PricewaterhouseCoopers. In 2006, weeks after McGuinty made her his minister of economic development and trade, she led a business delegation on the first of many provincial trade missions. That first trip was to Alberta. So was the next one. She got around to visiting India and Japan later.

“There is a big focus on energy and mining in Toronto,” Pupatello says now. “There is a whole industry of financial people just for energy and mining in Toronto and they are the world’s best. There are a lot of jobs tied up here related to the success of natural resources.”

In an interview with Maclean’s last July, Barrick Gold chairman Peter Munk said Toronto in the 21st century could play a role as important as London at the height of the British empire, as the banking centre for the world’s big infrastructure projects which, Munk is sure, will be mining projects.

Urbanization in China and India has just begun, Munk said. “You’re talking about a billion to a billion and a half people over the next 25 years who will be given a job. The raw material required to do that is staggering.” Even though the mines will be in the developing world, the banking expertise won’t be. “Say we have a huge find in Pakistan. You going to go to Pakistan to raise money? Who’s going to trust the legal system? Nobody comes near us in terms of credibility, in terms of financial infrastructure, in terms of expertise, incorruptibility.”

The Harper government’s changing attitude toward resource files has not been a gradual progression. It’s much closer to a sudden change in polarity. After five years playing defence on the environment, Conservatives are playing offence on natural resources.

In his January speech at the World Economic Forum in Davos, Switzerland, Harper identified a centrepiece of the new strategy. “We will make it a national priority to ensure we have the capacity to export our energy products beyond the United States and specifically to Asia,” he said. “In this regard, we will soon take action to ensure that major energy and mining projects are not subject to unnecessary regulatory delays—that is, delay merely for the sake of delay.”

The Prime Minister was echoing a letter released in January by Natural Resources Minister Joe Oliver, which accused “environmental and other radical groups” of seeking to “hijack our regulatory system” to achieve, once again, “their radical ideological agenda.” And indeed, one way of tracking the Harper government’s evolution on energy and resources is to trace the long disappearing act of its environmental policy.

Peter Kent had barely been appointed environment minister in January 2011 when he used the term “ethical oil” to describe the oil sands. In May, Harper named a new post-election cabinet that abolished a ministerial committee on energy and the environment he’d created after the 2008 election.

The Conservatives came to power amid widespread prosperity and confidence. Concern for the environment tends to rise when people have relatively few other pressing concerns. Harper’s top advisers spent hundreds of hours in 2006 and 2007 concocting plans to regulate or put additional costs on development of the oil sands. Those plans would have been implemented reluctantly, but Harper has shown before that he will do anything to protect his flank against opposition attack.

But starting in 2008, a series of big events took the wind out of the environmental movement’s sails. Then-Liberal leader Stéphane Dion, the movement’s most prominent politician, blew the 2008 election completely. A global recession put voters’ attention squarely and durably back onto their own economic security, safer terrain for the Conservatives. And Barack Obama, the new U.S. President, spent so much political capital on health care reform he had none left over for a sustained strategy to reduce greenhouse gases.

So just how much has the environment taken a back seat to policies aimed at the resource-rich West? Last October, Scott Vaughan, the federal commissioner of the environment, compared the promises the Harper government used to make on greenhouse gas emissions with the promises it makes these days. “The expected emission reductions have dropped from 282 million tonnes in the government’s first plan,” in 2007, he wrote, “to 28 million tonnes in 2010, a drop of approximately 90 per cent.” Eight weeks after Vaughan released his report, Canada formally withdrew from the Kyoto Protocal governing carbon emissions.

The Conservatives will certainly have a fight on their hands. Canadians concerned about the environment still number in many millions, and they are starting to react to the government’s increased assertiveness. A coalition of Quebec artists is calling for tens of thousands of people to protest against the resource economy in Montreal on Earth Day, April 22. Every candidate for the NDP leadership has endorsed some mechanism for adding to the cost of carbon emissions. Tom Mulcair wrote an introduction to a book whose French-language title translates as Oil Sands: Canada’s Shame. In a news release, the party’s interim leader, Nycole Turmel, said that “while our major trading partners move forward, the Conservatives want to keep Canada in the dark ages. It’s terrible for the environment, and it’s bad news for Canadian families who are getting shut out of new energy jobs.”

To state the obvious, the NDP will find a large and enthusiastic audience for such concerns. There’s plenty to worry about in a resource economy, from oil spills to the disturbance of wildlife habitat to the so-called “Dutch disease,” a gradual dulling of a resource-rich society’s ability to muster ingenuity and initiative in any field except digging. Public opinion polls are poor counsel for anyone trying to gauge which side would have the upper hand. When respondents are asked to choose between energy and the environment, slightly different questions make the answers vary so wildly as to be useless.

What is clear for now is that in proclaiming himself on the side of the country’s boom sector, Harper is seeking to put the boom on his side. He has no guarantee of success. His assorted opponents will seek to apply the lessons learned in earlier confrontations. But the battlefield—the economic and demographic context for everything that happens in Canadian politics—has shifted more drastically in the past five years than in any comparable span of time since the oil shock of the 1970s. Whatever happens to these Canadian politicians, Canadian politics will never be the same.

Ten years after Stephen Harper returned to politics, Paul Wells takes readers inside the revolution in this exclusive eBook. Available on your iPad or at