A changed relationship between an independent Alberta and the rest of the country could present challenges for the oil and gas industry

Market access.

Those two words have circled around the Canadian oilpatch like ants at a picnic for more than a decade, often driven by the thorny political debate in the country about building new oil pipelines.

Would Alberta face new or different market access constraints as a separate country?

Market access could become one of several key issues in the broader debate about the economic ramifications of Alberta separation on the energy sector, according to a report by the University of Calgary’s School of Public Policy released this week.

“Separation presents a potential opportunity for Alberta to improve productivity in the resource sector, allowing the province to better exploit its non-renewable resources,” states a technical study, one of several prepared as part of a broader report examining the consequences of Alberta leaving Canada.

“But improved resource-sector performance is contingent on continued market access, both to the (rest of Canada) and, far more importantly, to the U.S. market, which in turn requires a favourable attitude from Washington and strong world energy prices.”

The study commissioned by the provincial government was released as part of an analysis into the economic and fiscal implications of Alberta leaving Canada. It was unveiled ahead of the provincial referendum on Oct. 19, which will see Albertans vote on whether to pursue a binding separation vote in the future.

Much of the initial attention surrounding the report focused on the potential costs to set up a national government, but the analysis also digs into how this might affect the energy sector.

“An independent Alberta would have the same market access challenge to Asia-Pacific and to the U.S., but with the additional layer of a transformed relationship with the rest of Canada, which could be seamless . . . or, particularly with B.C., it could become more complicated and antagonistic,” Robert Johnston, the school’s director of energy and natural resources policy, said Friday.

“If I had to boil it down . . . on the positive side — greater control of your regulatory framework. On the negative side — greater uncertainty around market access.”

The oil industry in Western Canada struggled for years in getting new pipelines built, but the completion of the federally owned Trans Mountain expansion project in 2024 unlocked more transportation capacity and new markets in Asia.

As for the economic consequences from separation on the oilpatch, U of C economist Kent Fellows said the potential upside for the industry could stem from becoming more productive due to fewer restrictions or regulations.

But there are potential downsides, he added.

“Investors get nervous because they don’t know what the fiscal situation of the separate country, the new country, is going to look like,” said Fellows, a co-author of the report.

“That introduces a country risk premium, it makes borrowing more expensive.”

The report pointed out that oil, natural gas and mining make up about 40 per cent of Alberta’s exports to other provinces, with Ontario and Quebec the largest recipients. Nearly 90 per cent of Alberta’s total international exports head into the United States.

Keith Wilson, co-leader of the Alberta Transition Council, said the province would have leverage in any trade discussions with the rest of Canada, due in part to its role as a critical energy supplier.

“One of the things I found with this report is it really discounts the fact that Alberta is a powerhouse, economically, and is very well positioned to have successful negotiations in the future with British Columbia and the federal government,” he said.

“(And) if the Americans wanted to extract tolls on Alberta, they could do it today. It’s not a new risk.”

The technical report notes that any attempts by the rest of Canada to block the flow of oil or gas would likely only unfold if a major political rift broke out post-separation, while Alberta would have the authority to limit flows of refined products such as gasoline, crude oil and gas to counter any tariffs.

“This cycle would likely be self-defeating for both countries,” it says.

The study says that in the very short term, Canadian energy firms would likely pause investment plans to assess how separation talks would play out with the rest of the country.

However, once the situation stabilizes and the post-separation relationship with the rest of Canada and the United States is clarified, “companies are likely to look again at their long-term investment plans.”

“Whether this investment would be higher than if Alberta had stayed in Canada depends on how a separate Alberta uses its new policy flexibility, attitudes in Ottawa and Washington, and the outlook for world energy prices.”

Canada is the largest supplier of oil and gas to the United States — much of it coming from Alberta. The oilsands are forecast to keep growing in the coming years.

“The oilsands, in particular, values stability and predictability,” said Ben Brunnen, a partner with Garrison Strategy and former vice-president with the Canadian Association of Petroleum Producers.

“An independent Alberta creates significant uncertainty, in terms of long-term market access, long-term fiscal terms . . . and until those issues get resolved, companies are going to be reticent to invest new capital in greenfield projects.”

James Coleman, a law professor at the University of Minnesota who specializes in North American energy infrastructure, said the U.S. would still need energy from Alberta if the province were to separate.

However, it’s an open question how that would affect future market access south of the border for oil and gas.

“There could be both risks and opportunities,” he said.

“And I would say it’s very uncertain which way that would go.”

Chris Varcoe is a Calgary Herald columnist.