Behind Latest Alberta-Ottawa Oil and Gas Dispute Lie Decades of Rancour Over the Sector

Alberta Premier Peter Lougheed and Prime Minister Pierre Trudeau meet in Trudeau's Parliament Hill office to finalize a tentative oil pricing agreement, in a file photo. The Canadian Press/Dave Buston

The all too oft-repeated déjà vu of Alberta versus Ottawa discord on the oil and gas sector has resurged again amid talk of how best to respond to potential U.S. tariffs.

The deeply rooted struggle bubbled to the surface again last week when Alberta Premier Danielle Smith refused to sign a joint statement with Ottawa on potential responses to U.S. President Donald Trump’s threat of 25 percent tariffs on Canada.

Even though the joint statement made no mention of blocking oil and gas exports, Smith took issue with federal officials saying publicly or in private that export tariffs on the energy sector could be on the table as a possible response to Trump’s tariffs.

Meanwhile, Prime Minister Justin Trudeau is accusing Smith of not putting the country first, while Smith says her province has too often been disadvantaged by Ottawa.

In making her point, Smith alluded to the short-lived National Energy Program put in place by former Prime Minister Pierre Trudeau, as well as cancellations of pipeline projects and regulatory barriers to get the province’s oil and gas to markets other than the United States. For his part, Trudeau says his government bought the Trans Mountain pipeline project to ensure it doesn’t get cancelled, and that all premiers but Smith are acting primarily for the benefit of Canada.

Prime Minister Justin Trudeau meets with Alberta Premier Danielle Smith in Calgary on March 13, 2024. The Canadian Press/Todd Korol

The Past

The National Energy Program (NEP) was enacted in 1980 by Pierre Trudeau’s Liberal government as an effort to control the supply and price of oil and gas, and increase Canadian ownership of the industry.

Its abolition by Brian Mulroney’s Progressive Conservative government in 1985, five years later, came after a prolonged clash between Alberta and Ottawa over control of the resources.

The NEP aimed to achieve its goal through measures such as price controls and export taxes, designed to retain more supply within Canada while increasing federal revenue.

Albertans opposed the NEP, seeing it as a strategy by the federal government to control the petroleum industry and profit from it. The province had already gained ownership of its natural resources in 1930, when Parliament passed the Natural Resources Transfer Acts.

It was in the 1930s that some of the friction between Alberta and Ottawa began to heat up—though sentiments of Western alienation go back to much earlier times before Alberta was even a province. The province’s economy, which was largely agricultural, had been hit by the Great Depression, and farmers and small businesses were struggling to get loans from eastern banks—based in Toronto and Montreal—which controlled most financial resources.

Seeking to solve the struggle of Alberta’s unmet credit demands, the province passed legislation to create a provincial credit bank that would lend money directly to Albertans. However, the federal government ultimately disallowed the legislation as being unconstitutional, arguing that banking was under federal jurisdiction.

In 1938, Alberta created the Alberta Treasury Branches, a financial institution fully owned by the province. The move was seen by many as an early assertion of Alberta’s autonomy.

An oil rig drills a well under moon light near Cremona, Alta., on Sept. 24, 2023. The Canadian Press/Jeff McIntosh

An Economic Shift

Soon after World War II, Alberta’s oil industry boomed with a major discovery of crude oil in Leduc in 1947. The oil well, known as Leduc No.1, provided a geological key to the province’s rich petroleum deposits, quickly transforming its economy.

Developing the sector was costly, however, and Alberta struggled to get help from central Canadian banks. As a result, the province invited American companies to handle the drilling, further reducing its reliance on Ottawa.

As Alberta’s oil industry grew, so did jurisdictional discussions about different aspects of regulation and exports, and a series of “energy wars” between the province and the federal government burgeoned in the 1970s and early 1980s.

The conflicts were exacerbated by Ottawa’s response to the 1973 oil embargo during the Arab-Israeli War, when Arab members of the Organization of Petroleum Exporting Countries began banning oil exports to the United States and other countries that supported Israel and also introduced oil production cuts, causing a rapid price increase and a global oil shortage.

In 1980, the National Energy Program went into effect, seeking to nationalize oil and gas to make the country self-sufficient in energy and end dependence on foreign oil. The program implemented price controls that kept prices low for Canadians while maintaining world prices for international consumers.

Subsequently, with the collapse of global oil prices and with federal regulation of Alberta’s oil prices, the province fell into a recession, further straining its relationship with Ottawa. The resulting discontent among Albertans has lingered for decades.

“Here’s what happened the last time a Trudeau slapped an export tax on Alberta Energy,” Smith wrote in a Jan. 17 social media post, in voicing her opposition to Ottawa considering tariffs on or blockages of oil and gas export to the United States if Trump carries through with his 25 percent tariffs threats.

“Unemployment quadrupled from 3.7% to 12.4% as thousands lost their jobs, home values plummeted 30% and thousands lost their homes, bankruptcies rose by over 150%, tens of thousands left the province plunging us into a multi-year recession, cost to Alberta was between $50-$100 Billion.”

“His Dad crushed the lives of thousands in our province…we won’t let his son do it to our people again. Never,” Smith added.

She also says that given Ottawa’s and some provinces’ past opposition to pipeline projects taking Alberta’s oil and gas to other markets, it’s unfair for them to now consider sacrificing Alberta’s primary sector, especially one that is a major contributor to the nationwide equalization payments. She also stresses that dialogue is the path to avoiding the Trump tariffs, rather than retaliation.

In turn, Trudeau and some premiers say Smith is undermining national unity in the face of potential crippling U.S. tariffs, and that she isn’t putting her country first.

“I would actually like to point out to Danielle Smith that Canadians know the importance of standing up for each other. That’s why Canadian taxpayers bought the Trans Mountain pipeline expansion, TMX, to be able to get Albertan oil to new markets,” Trudeau said on Jan. 17. “That’s an example of all Canadians standing up for Alberta and getting it done.”

Trudeau added that while it’s expected for premiers to stand up for their own provinces, “they should also put their country first, as every single premier—except Danielle Smith—did.”

Trudeau has said that while his government is taking action to boost border security, including implementing a $1.3 billion plan, Ottawa is preparing different strategies to respond to any tariff threats, including a “dollar-for-dollar” matching tariffs scheme.

Oil Industry Development Hobbled

Among Alberta’s grievances are the lack of major pipelines that would have expanded its energy sector market, rather than being limited to selling its products at a discount to the United States.

Trudeau’s government has banned oil tanker traffic off British Columbia’s north coast, blocking the export of Alberta oil to overseas markets.

The ban ended prospects for the Northern Gateway pipeline, which would have transported oil from Alberta to the B.C. coast. In November 2016, Ottawa officially rejected plans for the pipeline, citing environmental and indigenous concerns. However, it approved two other major pipeline projects—expansion of the Trans Mountain pipeline and Enbridge’s Line 3. 

Alberta has also tried to send its oil east through the Energy East pipeline, which would have moved Alberta oil to Quebec and New Brunswick. In 2016, Ottawa changed the pipeline review process to include environmental assessments, reflecting Trudeau’s campaign promise to reduce emissions and enhance consultations with indigenous communities. Amid increasing opposition from environmental groups and stricter environmental regulations, TransCanada cancelled the project in 2017.

The Trans Mountain pipeline was built to carry oil from Edmonton to the B.C. coast to facilitate overseas exports. In 2018, Ottawa invested some $4.5 billion to purchase the existing Trans Mountain pipeline, expansion project, and terminals from Kinder Morgan in order to ensure the completion of the expansion. Ottawa faced criticism from environmental and indigenous groups for supporting the project.

The expanded pipeline became operational in 2024, with a total cost of about $34 billion. This is more than six times the original estimate, due to delays, legal challenges, and additional costs, according to an analysis by the Fraser Institute.

Different Priorities

In August 2022, when Germany was looking to replace Russian gas imports by buying Canadian natural gas, Trudeau questioned whether a business case existed for natural gas exports from Canada to Europe. He said “there has never been a strong business case” for building liquefied natural gas (LNG) terminals on the East Coast, given the cost involved and his government’s commitment to decarbonizing the economy.

A similar request came months later, in January 2023, when then-Japanese Prime Minister Fumio Kishida asked for Canada’s help in supplying natural gas to Japan, as it was also seeking to replace Russian natural gas.

Smith had sent Trudeau a letter prior to Kishida’s visit, urging the prime minister to secure a deal to supply natural gas to Japan.

“Our unparalleled energy resources, commitment to emissions reduction and historical connection with Japan position us to be a key contributor to Japan’s efforts to diversify,” she wrote. “Alberta believes there is a strong business case for shipping responsibly produced energy to Japan and other allies.”

During Kishida’s visit, the federal government made no commitment but later emphasized its support for Japan’s energy security “in the context of the global energy transition.”

Tensions between Alberta and Ottawa have continued to grow with the implementation of federal environmental policies that the province sees as a threat to its oil and gas industry. Ottawa says it has the authority to enforce measures on issues of national concern, such as climate change, while Alberta sees it as an overreach into provincial jurisdiction.

These policies, some of which Alberta has challenged in court, include federal environmental requirements for major projects like pipelines under the Impact Assessment Act, an emissions cap on oil and gas—which Alberta says is a de facto production cap—and Ottawa’s goal of fully decarbonizing electricity grids.