Lougheed Challenges the 'Eastern Bastards' and National Energy Program

In 1971, Peter Lougheed became the Progressive Conservative Premier of Alberta. A moderate by international standards, Lougheed enraged petroleum producers by retroactively changing the royalty maximums written into long-term petroleum leases, causing a sense of betrayal in the oil patch. The Seven Sisters had been generous to Alberta, which had been one of the poorest provinces in the country before the oil boom, but the electorate supported Lougheed’s move.

A month before the Yom Kippur war broke out in November 1973, Ottawa had announced that it would finally extend the Alberta-Ontario pipeline into Quebec, which in 1961 had refused western oil because foreign imports were slightly cheaper and the security of supply seemed irrelevant due to the international oil glut. Now, amid rising prices and market uncertainty, Ottawa asked Alberta producers to voluntarily freeze their domestic price until the end of January. Insult was added to injury two weeks later when the federal Energy Minister Donald Macdonald imposed a 40-cents-per-barrel export tax on crude oil.

The rush of petroleum discoveries in the western provinces through the late 1940s and 1950s were developed in the teeth of persistently low prices. Even so, Quebec refused to buy Canadian oil because offshore supplies were slightly cheaper. The federal government’s provocation aimed to raise money so Ottawa could continue to subsidize increasingly expensive foreign crude to Quebec and the other eastern provinces. Also suspected was to deter exports so domestic supply would be kept artificially high and prices artificially low.

The federal taxation on provincially owned resources was an unprecedented attack and exacerbated inter-provincial tension created by Ottawa, being antagonistic toward the western provinces since Confederation. With an upcoming election, and the Liberal government in a minority position, the goal of the deliberate confrontation with Alberta was to earn votes and popularity in their eastern stronghold. With the Arab embargo in place, Macdonald then raised the export tax fivefold to $1.90 per barrel, costing western producers $1 billion annually.  

The angry Ottawa-Alberta confrontation spawned the widely posted bumper sticker with the slogan, “Let Those Eastern Bastards Freeze in the Dark”.

In the seven years between 1973 and 1980, Alberta’s Oil Boom brought incredible wealth to the once-destitute province, the oil patch headquarters in Calgary, their employees, and the economy beyond the petroleum industry itself. The cradle of the Oil Boom was the repository of petroleum that geologists called the Western Canadian Sedimentary Basin, which stretched from the 49th parallel northward on a swath from central Manitoba to northeast British Columbia, to the Beaufort Sea and the Arctic Islands.

The men who managed it were the first generation of postwar, post-Leduc boom professional leadership. Having successfully explored the Basin in the 1950s and 1960s, they knew the sweat and grit of the fieldwork first-hand. They had drilled wells and laid pipelines before graduating to the executive suites in which they recreated the Alberta economy, building a foundation of prosperity of future generations. Before OPEC started ratcheting up oil prices, Alberta was poised for a decade of exceptional growth, with a new energy and confidence in the Canadian oil industry and among the 250 independent explorers and producers. The boom was executed by this group of entrepreneurs who blended roughneck aggressiveness with the practical creativity of western farmers. The oil boom was directly and indirectly responsible for the creation of tens of thousands of jobs in Alberta during the 1970s. At the drilling rigs, it was filthy, back-breaking, dangerous work and the rig was run like a military bootcamp. Young men came of age making lots of money while the work tested their strength and character.

Lougheed inherited his opinion that the first step to a diversified Alberta economy was the production of oil and gas processed at home from his grandfather, Senator Sir James Lougheed, who had invested profitably in Alberta’s first commercial oil discovery at Turner Valley in 1914. Lougheed had a circle of Canadian oilmen with whom he conferred, but even as producers applauded his toughness with the federal government, they took issue with his interventionist mindset and eagerness to tinker with the royalty regime. That said, criticism from outsiders was not welcomed: “He may be a son of a bitch, but he’s our son of a bitch,” one influential executive told the national newspaper Globe and Mail.

At the closing of the fall session of the Legislature in 1978, Lougheed said he was now convinced that Ottawa, backed by a few other provinces, might try to take over Alberta’s energy resources in the name of national interest. Liberal Prime Minister Pierre Trudeau called the long-awaited federal election on May 22, 1979 and campaigned primarily on his plans to patriate the constitution and his government’s economic record – a shaky platform. The public didn’t share Trudeau’s grand constitutional vision and the country suffered from a sluggish economy, double-digit unemployment, rising government debt, and a slumping dollar. On election day, the Conservatives formed a minority government. However, by 1980 the Liberals were back in government with a majority and zeroed in on Alberta to turn around Ottawa’s deteriorating finances.

On October 21, 1980 federal Finance Minister Allen MacEachen and Energy Minister Marc Lalonde of the Liberal government unveiled the government’s National Energy Program (NEP). The Prime Minister hoped to treat Ottawa’s increasing deficit problems with an extra injection of oil money from Alberta, which was already contributing a healthy amount to federal coffers, and he was determined to make his mark on history by patriating the constitution. To achieve these aims, he needed concessions from Lougheed on energy revenue and provincial rights – concessions the Premier was unwilling to make. His government reflected Albertans’ firm belief that they deserved their hard-earned profits as well as a larger voice in national affairs. Therefore, Alberta found itself in direct conflict with Trudeau’s vision of Canada as a nation of two founding peoples held together by an all-powerful central government. Lalonde said it was time for Ottawa to “seize control” of Canada’s energy resources in the name of “fairness to all Canadians.

The Alberta government’s response to the NEP was immediate and decisive; 48 hours after it was unveiled, Lougheed went on province-wide television to inform Albertans that “the Ottawa government has, without negotiation, without agreement, simply walked into our home and occupied the living room.” The federal budget and energy measures were more than just another round of simmering energy conflict between Ottawa and Alberta, explained Lougheed, “they are an outright attempt to take over the resources of this province, owned by each of you as Albertans.” He warned that the federal program directly threatened the constitutional rights of ordinary Albertans.

The Premier fought back hard with high-risk decisions. He announced that over the next nine months, beginning March 1, the province would reduce its oil output by 15 percent. Shipments of oil to the rest of Canada would be cut by 180,000 barrels per day, and $16 billion earmarked for the oil sands and heavy oil development would be re-evaluated and possibly shelved. Alberta would launch a legal challenge to the new export tax on natural gas. After eighteen months and the third round of output cutbacks, Lougheed and Trudeau signed a five-year energy pricing agreement on September 1, 1981, which was not well-received by industry.

By this time, there was a high surplus of crude oil in the international markets caused by falling demand following the 1970s energy crisis and 1980 marked a six-year decline in the price of oil, which reduced the price by half in 1986 alone. Additionally, a severe global economic recession across the developed world that began in the late 1970s left high unemployment until at least 1985 and Canada experienced high inflation at an average of 12 percent, and high interest rates, with the Bank of Canada’s rate hitting 21 percent in August 1981. The Alberta government had wanted to avoid a protracted war with Ottawa and the severity of the province’s response to the NEP was calculated to force the federal government to the table, and it worked. In less than twelve months there was a new deal and Alberta shelved the threatened production cuts.

Throughout the 1970s and early 1980s the notion that Albertans were obliged to share their “windfall” resource wealth was the keystone of federal Liberal policy towards the province. Implicit in this argument was the suggestion that Albertans were not sharing their good fortune with the rest of the country, and were, therefore, greedy and un-Canadian. In reality, the federal government confiscated $139 billion in net transfers between 1961 and 1992 from Alberta to the country’s ‘have-not provinces’, specifically Quebec, Ontario, and the Atlantic provinces. By 1985, the NEP and its related tax policies had resulted in this net transfer of wealth from the producing provinces, where 90 percent of this had been taken from Alberta. Th assessment and figures, determined by economist Robert Mansell from the University of Calgary, indicated that Alberta had been subjected to the largest per capita transfer of wealth ever recorded in a democratic nation.

In a 2001 interview, Lougheed reflected that the West had turned against Trudeau after 1968 for three reasons. First, he suffered from a “lack of knowledge” of western issues. Second, his policies catered to his political base in Quebec and Ontario. Finally, “more than anything”, he came across as someone who
thinks he knows it all” and westerners found this offensive. Lougheed said the relationship with Ottawa always seemed to come down to a desire to “control” Alberta: “They see us as being able, physically, to be independent and that means we would have influence with other provinces. When I look back on the Heritage Fund and the Canadian Investment Division, we just thought we should be participating in the Canadian mosaic. But actually … lending money to Nova Scotia and Newfoundland just drove the federal bureaucrats wild. It shook the foundations of their position. We probably, in hindsight, shouldn’t have done that … [but] we though we were expressing our patriotism.

Source: Alberta in the Twentieth Century, Volume Eleven, Lougheed and the War with Ottawa; CanMedia Inc.