Alberta could see 'backlash' if future premier tries to change oilsands rules

As such, he expects the Alberta government "will continue to let economics and the market guide them in their decisions, no matter who the leadership winner is," he said.

Just last week, leadership contender and former provincial finance minister Jim Dinning said he was concerned over imminent plans by large energy producer EnCana Corp. (TSX:ECA) to sign a deal with a major refiner to process oilsands crude in the U.S. Midwest.

"I believe that if you mine it here, you upgrade it here," said Dinning, though he was careful to add that he would not interfere with projects that have already been approved.

Klein also said that oilsands bitumen "ought not to leave the province" and instructed Energy Minister Greg Melchin to look at ways to persuade companies to do value-added upgrading and refining in Alberta.

Joseph Doucet, an energy policy professor at the University of Alberta, said trying to put new rules in place in an industry where new projects have such long lead times would be messy.

But fuelled by years of strong natural gas and oil prices, the energy industry requires new ways to control the speed of development, he said.

"I think we will see intervention of some type - if we want to slow the pace of growth or take a second look at how much drilling or how many oilsands projects are approved," Doucet said from Edmonton.

But Doucet also said he would be very surprised if Alberta took steps to artificially impose restrictions on how and where companies could do their oilsands upgrading.

If all new upgraders and expansions go ahead, about 80 per cent of Alberta's future oilsands production will be upgraded within the province, Melchin said.

He favours market incentives, like adjusting taxes and royalty rates to encourage companies to build their mega-projects in Alberta, rather than forcing them to comply.

Alberta Liberal energy critic Hugh MacDonald said critical issues concerning how the government deals with the energy industry have been around for years, but took a leadership race to come to public light.

"If we're having a public discussion on royalties and whether we're getting enough, it's about time," said MacDonald.

"If we're having this discussion on how much value-added manufacturing should be going on in Alberta, it's finally about time."

MacDonald said Alberta should consider reducing tax concessions and increasing royalties to companies who chose not to upgrade within the province.

The Canadian Association of Petroleum Producers said discussions with the government over issues like upgrading have been going on for years.

"Once we have a new premier, we'll sit down with that new premier and cabinet to see what direction they want to move in and what changes if any they want to be looking at," said Greg Stringham, CAPP's vice-president of markets.

"In the meantime, our best objective is just to make sure there's an understanding of how much money's collected in the royalty system, how it works and how much upgrading is going on already in the province."

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