The Natural Gas Squeeze

by Marco den Ouden
January 1981

Libertarians have long understood that freedom begets prosperity and that government interference with the natural order of the economy leads to dislocations.

Canada did not suffer the gasoline shortages our American neighbours suffered several years ago because Canadian governments did not meddle with fuel production and pricing to the extent that the U.S. government did.

But the Canadian government will not learn from America's errors. The recent energy policies of the federal government are wreaking havoc in energy production. Producers are packing up and heading for the U.S., especially since American energy production is starting to be deregulated.

As of January 1 over 50% of B.C.'s natural gas production was pushed into a money-losing position. On the same day a new 8% federal tax on petroleum revenues came into effect. This, of course, will provide great disincentives to explore for and produce energy.

Gas production in B.C. is divided into two categories, old gas (discovered before 1973) and new gas. Fifty-four percent of B.C.'s gas is old gas. All natural gas is bought from the producers by the provincial government-owned B.C. Petroleum Corporation. BCPC pays producers one rate for new gas and a lower rate for old gas. Producers have also been getting the same price for gas for three years now. Old gas production was only marginally viable before the 8% tax was introduced.

The BCPC also markets the gas and sets two prices, a low subsidized price for domestic consumers and a much higher price for exported gas. The price charged to foreigners has increased so drastically that BCPC has priced it out of the market and sales to the U.S. have slumped badly American threats to buy elsewhere were met by huffy arrogance by Canadian politicians.

There is no free market in natural gas in B.C. Prices paid to producers and charged to consumers are set by government fiat. The government is now considering raising domestic prices and giving producers a raise. Why wasn't this done earlier rather than let producers be pushed to the brink?

Another twist to the whole natural gas situation is that the federal crown corporation Petro-Can produces 50% of B.C.'s old gas. This government creature, of course, can and will be bailed out by the federal government no matter how badly it performs, placing private corporations at a great disadvantage.

The stage seems set for government corporations to squeeze out private producers and monopolize a resource which has the potential to provide North Americans with a cheap source of energy for many years to come. If this happens we will undoubtedly end up having our energy delivered with the same efficiency as our mail.

The choice seems to be between two alternatives: a free market or a government monopoly -- bountiful energy at the market price or freezing in the dark.