This post is based on an article published as an op ed in the Saint John (New Brunswick)  Telegraph Journal, April 10th, 2015.

 

The recently announced two year delay of the Energy East pipeline project should come as no surprise given the ongoing price volatility and weakness in world oil markets.

It is still too early to predict with any accuracy how long $50 oil will be with us or what impact lowered oil prices will have on the need for new Canadian pipelines. But, New Brunswick can capitalize on the extra time we’ve been given by doing a better job of preparing for this development.

With weak markets, the fossil fuel business will be increasingly focussed on cost reduction. That is not good news for those in this province who have been relying on promises of generous benefits from Energy East.

While other provincial leaders have established firm preconditions for their support of pipeline projects, successive government leaders here have been relying on trust that the value this province brings to the table will be fairly rewarded. Energy East has been sold on the simple premise that the pipeline is a game-changing event and that alone is enough to set us on the road to recovery.

No assessment of Energy East’s benefits can be complete, though, without a better understanding of what opportunities we’ll be giving up with the establishment of a oil pipeline corridor through nearly 400 km of private and public lands in the Province.

Economists remind us that when we make any decision that restricts our ability to make subsequent choices, the lost value that could have been derived from those forgone choices is referred to as “opportunity cost”.

Without subtracting opportunity cost from the forecast benefits to New Brunswick, we cannot know if the benefits will actually outweigh the cost of Energy East. The analysis has not been done or if it has, it hasn’t been shared with those in New Brunswick who should have had it for informed decision making.

The previous Alward Government commissioned a study that estimated the benefits of Energy East to the New Brunswick economy. But neither this study, nor those commissioned by Energy East’s proponents gave consideration to the opportunity costs of creating a restrictive corridor bisecting New Brunswick from the Quebec border to the Bay of Fundy. (Those studies did not address environmental risks or costs, either)

The pipeline corridor eliminates many potential uses of the impacted properties, forever. Wood lot owners, for example, will be limited in where they can grow trees and property owners may need the permission of the pipeline company to move equipment and product across the pipeline corridor, even on their own property.

Within the corridor, there may be no forestry, no quarrying, no mining, no buildings, no road construction, nor any other activity that might potentially conflict with the pipeline. That is, without the agreement of the pipeline company.

The value of the activity we give up with the imposition of a pipeline easement is not just an opportunity cost for landowners. It is a cost to taxpayers and ordinary citizens. This lost value, at a minimum, should be reflected in any payments received either by landowners or the government. If it not, New Brunswickers would be subsidizing a pipeline company and their Alberta shippers and that is not reasonable.

Landowners are already confronting these issues in negotiations with the project developers. Without the reassurance that they will get fair value, public support for this project will be tested further, as pipeline negatives become public.

The National Energy Board Act envisions a balanced process between landowners and the pipeline company, one that gives the land owner a choice between a one-off payment for an agreement, that lasts forever, or a renewable lease that provides for regular rent payments for a defined time period.

The relationship between landowners and pipeline companies doesn’t work that way in reality.

Pipeline companies in Canada almost never agree to lease arrangements that would require them to pay ongoing rents for land access and use that reflect market values as they change from time to time. This is unlikely to change as landowners, especially smaller private landowners, have limited resources to take on multinational pipeline companies and the National Energy Board.

Landowners can and should organize and, while organizations like The Canadian Association of Energy and Pipeline Landowner Associations can be very helpful, there can be no substitute for a clear statement from the government of this province about what it expects from the pipeline company in its relationships with landowners.

It’s not too late for the Premier to make it clear that as a starting point, he wants a reasonable minimum package that offsets all costs for land owners and the Province. But first, those costs must be evaluated, summed for the full impact on the province and provided to those who need them to negotiate a fair deal.

Premier Gallant should insist, in the meantime, that landowners are operating on a level playing field. All options should be on the table with respect to the form of agreement and terms of compensation for land access and use.

Let’s use the time we now have wisely. Quantify the costs of Energy East and use the knowledge to build a better, more comprehensive economic package for the province and for those directly impacted by this development.