Photo Credit: Jared Anderson/Breaking Energy

Alberta is Canada’s energy powerhouse, home to the country’s oil sands resources, significant natural gas reserves and over 10 active coal mines. As the country seeks to be a global energy power it needs the steward of its abundant resources to be viewed as one of the world’s best, and that responsibility now falls on the newly formed Alberta Energy Regulator.

The new regulatory body brings several previously separate regulators under a single roof, with the goal of increasing efficiency, transparency and credibility.

The government of Alberta constantly struggles to strike a balance between obtaining the economic benefits provided by developing the province’s natural resources while protecting the environment to the highest degree possible amid the intense industrial activity associated with oil sands and other energy resource production.

Alberta Energy Regulator President and CEO Jim Ellis recently told Breaking Energy in an interview that industry’s common refrain is “regulatory certainty is priceless.” Clearly companies investing billions of dollars in long-term energy development projects want to know the regulatory goal posts are not going to change in ways that impact investment decisions.

At the same time, the local environmental community recognizes the value of the region’s natural resources, but strives to ensure development proceeds with the least possible impact to water, air, land, wildlife and human health.

“After about a year we are still optimistic and there has been some good involvement, but the rubber has yet to hit the road with regard to with a lot of the regulatory processes,” Managing Director of the Pembina Institute Chris Severson-Baker recently told Breaking Energy in a phone interview.

Initially there was a lot of concern that a single regulator for oil and gas would be going in the wrong direction, Severson-Baker explained. It could put more power in the hands of the Energy Resources Conservation Board (ERCB) – one of the AER’s predecessors – that was viewed as not being a very credible regulator because they took a more industry-friendly approach and didn’t always listen to other stakeholders, he said.

It’s a difficult role for the regulator to play, but so far it appears the restructured organization has had some success at streamlining its processes to the benefit of major stakeholders. One example of an improvement well received by industry and the environmental community is the concept of “bundled applications,” said Ellis.

“I know in the Bakken…we are all having trouble understanding the full cumulative impact on the ground. This way we’ll have a full view from start to finish. How long, where they [development companies] are going to be, what they need to do. We can manage that easier as environmental regulators and it’s easier for the landowners and stakeholders in the area to have an understanding of what’s going on,” he said.

“You can imagine a landowner or landowners living in that area are consistently hounded by land developers coming in saying we want to put a road here, a pipeline over here and they don’t do it all at once. They will come in every so often and the landowner is saying ‘OK what else are you going to do here?’”

Surface disturbance issues are an interesting aspect to the way projects are currently developed, Ellis noted. Every company wants to build their own road, pipeline, gas plant, etc., which doesn’t make good business sense and adds to the impact on the environment. “We are trying to incent them to work together,” he said, so instead of perhaps 13 companies building 13 gas plants, you build 3 larger plants that are constructed and run by world-class midstream companies.

“Environmental organizations have always wanted to look at oil and gas development on a regional level to do a big environmental impact statement. That’s the promise that’s being put on the table with play-based regulation, but if not done properly it could just represent a streamlining of the approval process,” Severson-Baker said. “The hope is the AER engages stakeholders on that approach. So far that hasn’t happened yet, but we are optimistic that they will be forthcoming with regard to engaging stakeholders like the environmental community.”


Photo Credit: Jared Anderson/Breaking Energy

Indeed, the AER has improved permit application efficiency within the regulatory process. Since officially starting operations in the spring of 2014, the AER has erased a 9,000 application backlog, Ellis said. They created a transparent system that allows companies to see where exactly within the process each individual application is at a given time.

And the volume of permit applications illustrates the perception challenge the AER faces when attempting to maintain robust dialogue with all stakeholders. Given the large number of companies pursuing various development projects that all require numerous permits, the regulator in charge of processing those permits naturally engages in significant communication with industry that takes up a fair amount of their time.

Severson-Baker recognizes the stakeholder engagement difficulties faced by AER. “One challenge is the pace of industry is so rapid.” And he added the AER probably have a window of time to deliver on their engagement goals. While the duration of that window is not precise, it’s probably something like 2 or 3 years, we are already about a year in.

Impacts of Oil Price Decline

It’s quickly become a difficult time to make sweeping regulatory changes with the price of oil plummeting – international benchmarks are down roughly 40% since June and local benchmark Western Canadian Select trades at a discount. Such declines ultimately mean less revenue for the government of Alberta in the form of royalties and taxes, which trickles down to the AER’s budget.

It will take time for lower oil prices to result in those impacts, but Ellis did say they are just now starting to see a dip in new drilling permit applications. Asked about startup to delays to the nearly 700,000 b/d of new oil sands projects that have taken final investment decisions or are currently under construction, Ellis said the AER is “not seeing a pullback,” but it’s still early days.

Despite the potentially negative financial implications associated with the oil price decline, a slowdown in the development of highly capital-intensive oil sands or other unconventional oil & gas development projects could give AER a bit of breathing room it can use to get the stakeholder engagement issue right.

One thing Ellis and Severson-Baker agreed upon is the importance of credibility to the new regulator. If the AER can successfully negotiate the challenges and accomplish its goals, it could help reduce international opposition to oil sands development.