oil which is surplus to Canada, whether it should… whether it is sufficient to sell it to the United States. We are also interested in the financing and construction of the pipe lines and other kinds of transportation methods used to get the gas out. So, for that matter, of course, are Northern Affairs and the Ministry of the Environment and the Ministry of Transport. We don’t always see eye to eye, but we try.” He coughed and wiped his head. “Also there are some questions between us in the various ministries as to who is responsible for what.
“I want to deal first with the Arctic Islands. I brought some slides along to show you the places I want to talk about.” He turned and said to Lafrance, “Claude, will you put the slides on for me? And you’d better run the machine also, if you don’t mind.”
Lafrance went around the table and dropped a tray of slides into the projector. He switched on the machine and flicked to the first picture, a map of the Arctic Islands from Banks across to Ellesmere, and from the Boothia Peninsula and Northwest Passage to the North Pole. Gunther proceeded.
“On this map you can see Melville Island at the bottom left-hand corner. The area between Melville Island on the southwest and the Eureka area of Ellesmere Island to the northeast is known as the Sverdrup Basin, and these islands are called the Sverdrup Islands. Starting in 1970, with the first strike at Drake Point on Melville Island, successful exploration work has been going on here. There are now fifty drilling rigs on the islands, and gas finds have been made on Melville, King Christian, Thor, Ellef Ringnes, Axel Heiberg and Ellesmere. There have also been four oil finds, one on Banks Island to the southwest of Melville, another on Thor, and a third on Ellesmere and a major new discovery on Melville.
“Our best estimate on the gas reserves in the Islands is now approximately 60-trillion cubic feet, which is about three times the amount necessary to justify the cost of construction of a transportation system to deliver 1½-trillion cubic feet a year to the market in the United States. On the basis of a thirty-year projection, Canada needs 35-trillion cubic feet to meet its future requirements. This leaves a surplus of 25-trillion cubic feet which could be exported.”
Gunther paused a moment, took out his handkerchief again and wiped his face and bald head. He was now perspiring profusely, but he struggled on, reading from his notes.
“Most of the gas reserves are held by Panarctic, which is a Canadian-controlled company, as I am sure you are all aware. It was formed in 1968 because the Canadian government was afraid that exploration wouldn’t go forward in the Arctic without some incentives. It is 45 per cent owned by the government of Canada, 10 per cent by Canadian corporations such as Canadian Pacific Investment, and 45 per cent by foreign corporations. At no time have any shares of Panarctic been made available for purchase by the Canadian public — unfortunately.
“When Panarctic started to hit in 1970 with its first discovery well at Drake Point on Melville, and a later find on King Christian Island, American interests quickly appeared on the scene. Gas distribution firms in the U.S. quickly saw there was going to be a major supply on the Arctic Islands and they wanted to be there for a piece of the action. It was clear there was going to be an enormous shortage of natural gas, and they were anxious to advance exploration money to Panarctic in return for the right to purchase the gas when it was discovered. And that’s what they’ve done. Tenneco of Houston, Columbia Natural Gas and other gas distributors have advanced Panarctic interest-free money repayable only in the event that gas is produced. Within three years of the first discoveries, the Panarctic shareholders had put up $101-million, while the American group had invested over $75-million. Since that time, the capital input by Panarctic has remained at $101-million, but now the American investment is over $500-million.
“It can be said that because Tenneco and its associates have the first right to negotiate for the gas discovered by Panarctic, and because they have put up the lion’s share of the capital … it can be said the American firms in effect own the gas in the ground. They own it, but they have to get permission to take it out and transport it to market.
“Now I’d like to return to the question of a continental energy policy, touched on by the Minister of External Affairs. During the Nixon administration, the Americans decided that an over-all policy concerned with all available forms of energy was essential throughout North America. They pointed out that since the United States and Canada occupy the same continent, and since the United States had in effect paid for the discoveries made in the Canadian Archipelago, it made sense to have an agreement regarding the distribution of the products resulting from those discoveries.
“For the Americans, a continental energy policy meant that Canada would share all of its energy resources with the United States, which in turn meant that we would have to share the shortages as well. When the President says that Canada has refused to agree to make available to the United States the Arctic Islands gas, he is not correct. What we have refused to do is enter into a continental energy policy agreement, of which gas would only be a part. I am of the firm view that if negotiations had proceeded on the basis of gas alone, the Americans could have had a commitment for the Arctic reserves long ago, and the transportation system would have been well on its way by now.
“In a way, Canada has been fortunate that an agreement wasn’t reached. Up until the middle of the last decade, we were practically giving our gas and oil away. To obtain exploration rights in the Mackenzie Delta and the Arctic Islands, a company was only required to put down a deposit of between 5 cents and 25 cents per acre. Then, if drilling was successful, it would pay a royalty of 5 per cent on all production for the first five years (if the find was north of latitude 70 degrees) and 10 per cent thereafter, or (if the find was below latitude 70 degrees) 5 per cent for the first three years and 10 per cent thereafter. Anyone can see that this works out at not much more than bank interest on the capital which had been given away in the ground. Thus Canada stood to gain practically nothing from the sale of oil and gas.
“Compare that kind of giveaway with what the Middle East countries have done and are now doing in terms of retaining ownership of the fossil fuels in the ground and taxing the product. With royalties, taxes and payment money, they get a return of between five and six dollars a barrel for oil which costs twenty cents to produce. It’s little wonder that the Middle East and Mediterranean members of OPEC have become among the richest nations in the world with very little effort. In fact, the control of billions upon billions of American dollars, in the hands of the leaders of these countries, has enabled them to manipulate the American dollar in world markets and cause serious changes in the value of the dollar from time to time.
“Fortunately Canada has smartened up a bit in its dealings. We have issued new leases covering the drilled acreage in the North. Under the new terms, a fair share of the proceeds of the sale at well-head will go to the Canadian people, in export taxes and a royalty of 25 per cent on all production in the Islands and the Delta. The U.S. oil and gas companies have been extremely annoyed at the new terms, but for Canadians they could provide a return of 50 per cent of the market price of the gas, and in effect a yearly income equivalent to all federal expenditures. Thus it is certainly in Canada’s interests to arrange for the export of these resources, provided Canada’s future needs are protected.
“Now I see my time has just about run out. Perhaps I can answer one question.”
Gunther took one of the notes which had been left beside the lectern on the table. “Why shouldn’t Canada enter into a continental energy agreement with the United States?”
“Well, I can’t answer for the previous administrations, and I may not be able to answer for this one. …” He glanced down toward the Prime Minister.
Robert Porter stood up. “If I may, I’ll answer that question for Mr. Gunther. It is a most difficult one. I don’t want him to bear
