Friday, May 30, 2008

The Great Pipeline Debate

This series of articles first appeared in the June, 2008 issue of Oilweek magazine.
By Peter McKenzie-Brown

The Minister of Everything
“If we have overstepped our powers, I make no apology for having done so,” said C.D. Howe to Parliament in 1953.

Howe was known for his gathering arrogance. The second most powerful politician in Canada, he ran much of the government and was dubbed “Minister of Everything” by supporters and opponents alike. A man of extraordinary ability and energy, he served in Parliament from 1935 until 1957. His downfall was a Parliamentary wrangle known to history as the Great Pipeline Debate, which took him and the government he served down to a surprise defeat. Howe’s performance effectively ended a quarter-century of Liberal rule in Ottawa.

Half a century later, it is difficult to imagine the emotions aroused by a pipeline construction proposal. At one time, though, Trans-Canada Pipelines was the focus of a divisive national debate.

After twice rejecting applications, Alberta had granted gas export permits in 1953. Pipelines were now essential to get that gas to market, but efforts to develop the Trans-Canada line to Central Canadian markets encountered a Pandora’s Box of problems. These began with the fact that the project was primarily financed by American interests – merchant bankers Lehman Brothers and a covey of oilmen, including the legendary Texan, Clint Murchison.

Despite the strength of its board, TCPL had difficulties from the beginning. There were several competing proposals to move gas east from Alberta; because of the uncertainty, Alberta producers would not sign supply contracts, and distributors would not sign purchase contracts. TCPL’s original route, which would have taken the project through US territory, faced the fierce opposition of Canadian nationalism. When Ottawa rerouted the line through the rugged Precambrian Shield, which covers most of Canada north and east of Winnipeg, private-sector financiers balked at the additional costs.

Other trouble came from across the border. An association of coal producers called the proposal “a brazen attempt to force the American people to subsidize a costly and unnecessary pipeline across Canada.” Even the Federal Power Commission, whose approval TCPL needed to sell gas into the United States, got into the fray. The American regulator was skeptical of the project's financing and unimpressed with Alberta’s reserves.

Nonplussed, Howe used his considerable political skills to drive the project forward. “This is no ordinary project, but the largest capacity and longest pipeline ever undertaken,” he said. “The project is comparable in importance to our transcontinental railroads. In my opinion, if the project is allowed to collapse, the use of western gas in eastern Canada will be a dead issue for all time.”

Howe virtually compelled TCPL and its competitors to merge and put a bill before Parliament to create a Crown corporation to build and own the Canadian Shield portion of the line, leasing it back to TCPL. During the Great Pipeline debate in 1956, Howe tried to force the legislation through Parliament by using closure at every stage. This tactic annoyed the opposition parties, who objected strenuously, delayed its passage, and turned the pipeline into a major political issue. The use of closure created a furore which spilled out of Parliament into the press, and led to the government's defeat at the polls the following year.

After his electoral defeat, Howe said simply, “We were too old. I was too old. I didn’t have the patience any more that it takes to deal with Parliament. You know, over a year ago I went to the Prime Minister (St. Laurent) and suggested that he and I ought to retire. He wouldn’t hear of it – I guess he’d decided to live forever, and everything was to go on as it was going. So he said nonsense, we must stay. So we did – and look what happened.” Clarence Decatur Howe died on New Year’s Eve, 1960, aged 75.

The Wildcatter
Himself the son of a prospector, Francis Murray Patrick McMahon (known as Frank to everyone but the baptising priest) became a hard-rock driller in the 1920s. The following decade he shifted to wildcatting – unsuccessfully in BC’s Flathead Valley, then in Alberta.

Pacific Petroleums is the oil company he is most closely associated with. It originated in 1930 through the merger of two tiny Turner Valley-based companies, one of which McMahon had founded. In the early days, McMahon’s involvement with the company was tenuous – he wasn’t on the board, and an economy drive during the Second World War relieved him of his job as operations manager. After the war he rose to the top, however, and imbued the company with vision and energy. So successful did the company become that in 1979 Petro-Canada acquired it as a fully integrated oil company for the then-record purchase price of $1.5 billion.

McMahon was successful in Alberta but – always the maverick – turned his attention to exploration in his native British Columbia just after the war. He coaxed the government to open up lands in the Peace River area for development. First in the queue, in August 1947, he acquired permits #1-3 for a consortium he had assembled, thus obtaining exploration rights on 750,000 acres. His 1951 discovery of the Fort St. John gas field rewarded this gamble and contributed to the next stage in his remarkable career.

Not until the 1950s did natural gas development become a major continental enterprise, and early in those years there was a great deal of competition to build the lines that would eventually create North America’s fundamental pipeline grid. Frank McMahon was a fierce competitor in both of Canada’s major controversies.

With an eye to creating a gas pipeline to BC’s lower mainland and the Pacific Northwest, he incorporated Westcoast Transmission in 1949. His original plan was to export Alberta gas along this line. He encountered delays getting export licenses, however, so he simplified matters by first negotiating with the government of British Columbia for permits to transport and export natural gas from the growing reserves being discovered in the Peace.

Westcoast won final approvals from British Columbia, federal regulators and America’s Federal Power Commission in 1955. Within two years, the company had constructed a $170-million, 680-mile pipeline from BC’s Peace River area. The line delivered gas to some cities in the BC interior and to the Lower Mainland, and exported gas to the Pacific Northwest. In October, 1957, an American reporter provided a vivid description of the opening ceremonies. “At the turn of a valve,” he wrote, “gas roared through the 30-inch pipe heading south for Vancouver, and a gas flame leaped symbolically skyward. Said McMahon, ‘So far, (natural gas) has all been going out (of the United States). Now it will start coming in.’”

The huge American market tantalized McMahon, and around the time of the Great Pipeline Debate he also put together one of the bids competing with Trans-Canada. Audacious to a fault, in March 1956 he walked into the Ottawa office of C.D. Howe and presented his alternative. He would construct a pipeline from Alberta to Montreal, following an all-Canadian route. It would be 70% Canadian owned, and it would require no financial assistance from government. Furthermore, he would “personally post with the government $500,000 performance cash to complete the project by 1958, subject only to being able to obtain necessary materials.” The key to this financial alchemy was a bigger line and larger exports to the US market.

Although in some respects the proposal seems clearly superior to the TCPL proposal, Howe wanted nothing to do with it. He wouldn’t even discuss it. McMahon let news of this rejection out, however. As the clamour of the Great Pipeline Debate grew, news about this proposal contributed greatly to the din, and to the defeat of the federal government.

Born in 1902, Frank McMahon died in 1986.

The High Priest

Eldon Tanner was a politician (16 years in Alberta’s legislature) of great skill, and a man of impeccable integrity. The Minister of Lands and Mines in 1947, he turned the valve to officially start oil flowing from Leduc. In 1952 he retired from politics, moving to Calgary to head a small company called Merrill Petroleums. Reflecting on his years in politics, he believed his political legacies were fiscal responsibility, efficient administration in government and the conservation of Alberta’s natural resources.

In those days, the meaning of “resource conservation” was quite different from our meaning today. It meant limiting gas exports to those in excess of the province’s 30-year needs. This calculation consumed the Oil and Gas Conservation Board and helped delay the selection of a line to eastern Canada and points south. In 1954, premier Manning resolved the stalemate by informing C.D. Howe that Alberta would only give permits to one company to export gas eastward.

At that time only two serious contenders were left at the bargaining table: US-owned Trans-Canada Pipelines and Western Pipe Lines. Western was a Canadian company with an economical and realistic plan. However, to be profitable it needed more foreign exports than TCPL – an insurmountable political handicap. In the end a shotgun wedding married the two, with Howe’s finger firmly on the trigger.

The merged company needed a president, and in 1954 Tanner was asked to serve. Initially, he refused because the company wanted to host its head office in Toronto. TCPL was undeterred. According to Tanner, “The next day I received a call from Premier Manning. He said, ‘Tanner, these people want you to do this job and I think it is your opportunity to be of great service to your country’....Well, I got a call the very next day from Mr. C.D. Howe, who was the Senior Minister of the Canadian Government, telling me he wanted me to take the job. He was very complimentary and said that I was the only man who could hold these two companies together. Flattery, you know, will get you anything. I did feel that when the two asked me to do it, I should accept.”

The company agreed to have its head office in Calgary, and Tanner brought political savvy, business acumen and interpersonal skills to the job. According to the leading historian of TCPL, however, he “probably did not play as important a role in Trans-Canada’s survival and ultimate success as half a dozen of the original sponsors on the board. Nor did his ability or style ever qualify him to be a member of the power elite of Canadian business and public life. But his quiet diplomacy was to be important both to the morale of the employees and for relations with a great range of persons outside the company.”

With their ascendancy to power after the Great Pipeline Debate, the Diefenbaker Conservatives appointed a federal commission to study Canadian energy export policy. Its report suggested that Tanner might have acted improperly by exercising stock options in a company that received federal financing. Embarrassed, he relinquished TCPL’s presidency in 1957 and chairmanship of its board the following year.

Public libraries file Nathan Eldon Tanner’s official biography among religious books, and the last word on the man needs to go to his religion. A devout Mormon, after Trans-Canada he dedicated his life (he died in 1982, age 84) to the church. Indeed, for his last two decades he was President of the Quorum of the Twelve Apostles – the highest religious role a Mormon can aspire to.
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