Brian Zinchuk is editor and owner of Pipeline Online
Saskatchewan United Party Leader Jon Hromek on Oct. 2 in Regina. Photo by Brian Zinchuk
Editor’s note: Pipeline Online has put out requests to conduct similar interview with the Saskatchewan Party, New Democratic Party, Buffalo Party, Progressive Conservative Party, Green Party and Progress Party. These will likely be the most in-depth stories on energy policy you’re going to see in this election.
REGINA – The Saskatchewan United Party was founded on the basis that a more conservative voice needs to be heard in this province’s politics, and that the Saskatchewan Party government had lost its way. Jon Hromek, former CEO of two oil companies, assumed leadership this past summer.
Pipeline Online spoke to him on Oct. 2 in Regina about the new party’s energy policies. As a professional engineer whose career has been in the energy industry, it’s an area near and dear to his heart.
Asked what their primary energy policy will be, Hromek said, “Right now, our primary policy would be through the PST reduction. So dropping it by three per cent that adds significant value, because, I mean, six per cent is applied to just about everything since they made those rule changes in 2017.”
He noted that other than drilling and service rig contractors, the PST affects the entire industry.
For oil and gas, Hromek spoke about increasing financing opportunities, a major sticking point for the industry in recent years as capital has all but dried up.
Hromek said, “On the oil and gas side, specifically, especially oil, because we’re making oil: one thing that we have that I think would be really good for the province, is we want to start the ‘Sask First Bank.’
“So, under provincial regulations, you can have a bank, like a credit creation vehicle, that is 100 per cent governed by the jurisdiction of the province, provided that it doesn’t operate outside the province,” he said. This would be similar to the Alberta Treasury Branch (ATB) next door. “That’s what we want to bring to Saskatchewan, because so much oil and gas investment is being pushed out because of ESG and DEI and the net zero and all of this stuff.
“So we want to have a bank or a facility whereby we can provide credit creation for our producers, here in Saskatchewan, that’s independent of all those.”
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Multilaterals
In the 2024 budget, the Saskatchewan Party government brought in a multilateral well incentive program that provided a dramatic reduction in royalties, down to 2.5 per cent, on up to the first 16,000 cubic metres (100,600 bbls) of oil on new wells of this type. It’s the largest change in the oil royalty structure in two decades. The result has been a substantial adoption of this form of drilling. Asked if the Sask United would keep it, or do something different, Hromek said, “No, I would keep that. Yeah, because, I mean, a lot of the value to the province of the oil industry is the drilling activity. So that will add drilling activity to it, for sure.”
Saskatchewan has drilled about 10 natural gas wells in the last decade. Asked if there’s any way he sees of rejuvenating or incentivizing gas activity in this province, he said, “I think the only way you could actually get gas activity going again in this province is to lower the capital requirements to do it, basically drop the cost of capital needed to bring it on. Because we just don’t have the pressures that Alberta does, right? Gas can be found everywhere in the province. But it’s the accumulation component to it. So, the only way that it really works is if the gas price is much higher than it is today, and you can drop the cost of drilling it and all of that, which those things have just steadily been increasing in steel and everything like that. So I, I don’t know. To me, it will be very, very difficult to increase gas production.”
At the end of a four year term, what is the Sask United’s goal for oil production, given it’s currently around 454,000 barrels per day? Hromek said, “Scott Moe is saying he wants to hit that production term (600,000 bpd by 2030). We haven’t even got back to pre-COVID production yet. You know, that’s what a lot of a lot of people don’t even understand. That’s just basically how flatlined the oil and gas industry really is. Where my goal would be is to get enough capital back that not only can we maintain, but actually even just get back into that 500,000 range.
“I would say 500,000, that would be a very realistic (goal.) Say that would be more of a 10-year type of goal, because you need to stop the decline first, right? And then you need to find some more major plays. A major play would be, would be expanding carbon capture. For me, carbon capture is not about a Net Zero thing to me. It’s just awesome in oil reservoir.”
Hromek would be in favour of using carbon dioxide from the Alberta oilsands in enhanced oil recovery in Saskatchewan.
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Potash
Former NDP energy minister Eric Cline released a book last spring entitled Squandered: Canada’s Potash Legacy. In it, he makes the case for re-evaluating potash royalties in Saskatchewan, suggesting a lot of money is being left on the table. With several parties, including Sask United, offering substantial tax cuts in their platforms, where will the money come from? Hromek has already suggested some royalty adjustments for potash royalties. Asked about that, he said, “One hundred per cent.
“We would do a full-fledged potash royalty framework review. It was designed in the 90s, tweaked a little bit in the early 2000s back when the price of potash was averaged about US$170 to US$175 a ton. Now, since the Sask Party has taken over, its average closer to US$500 a tonne.
“And the royalties resource surcharge, and then this little production charge they have, only amounts to seven per cent. The biggest component of on the current royalty framework for potash is called the profit tax. The profit tax is basically gross profit minus your cost of deduction to equal your profit, and then they take percentage of that. But what happened was the existing producers convinced the government of the time to exempt a lot of the new production that they were going to bring on. So, in today’s world, 35 per cent of the potash that’s produced in Saskatchewan right now is exempted from the profit tax, and that’s basically the only component that the province can collect any meaningful amount of revenue.
“When BHP brings on its latest expansions within the next couple years here, 65 per cent of the potash produced in Saskatchewan is going to be exempted from the profit tax. So, it’s a totally different type. And that whole profit tax mentality is totally different from what you’re used to in oil and gas. Same with me, right? So we’re used to royalties being paid on gross, where the profit tax is, there’s no incentives for the potash producers to want to streamline their processes, because, basically, they’re incentivized to up their production costs because then there’s less exposure to profit tax, right?
“So I’m not saying that’s necessarily a bad approach, but it disincentivizes businesses running efficiently.”
Asked if he had a level of total taxation or royalties he thought was fair, Hromek said he didn’t have a number in his head but, “I would think that the potash industry, on average, should be contributing I’d say around that $750 million annually, more than what it is.”
Lithium
While Saskatchewan does not yet have any lithium production, its royalty structure is based on potash royalties. According to the Ministry of Energy and Resources, “A Crown royalty in leases for brine lithium production of three per cent of the value of sales, with a two-year holiday for new capacity.” Asked what the Sask United’s approach would be on lithium, Hromek said, “It’s fine. It’s a resource. I mean, they’re highly incentivized to go and drill it because of the royalty structure that they’ve had …It is free. It’s virtually free.
“I don’t know. I don’t like all of those incentives that they’re doing on, outside of oil and gas. Because the oil and gas, we understand how royalties work. It’s big on the gross side. It incentivizes the businesses to work hard to make sure you’re running the cheapest and the lowest cost of production you have. And it ensures that the people of Saskatchewan get their revenue from it. So, I would look at that. I’d look at helium, and I would also look at lithium.”
Helium
On helium, he said, “We want to encourage development, but at the same time, we just think that the Sask Party just always seems to want to just give our resources away.”
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Power generation
Regarding the “energy transition” and federal Clean Electricity Regulations, Hromek said, “I’m 100 per cent against anything that shuts down coal and natural gas. One hundred per cent against it. Net Zero, to me, to this party, does not exist on anything, but as an Excel spreadsheet
“We’re all for clean coal. To me, the environment is clean air, clean water, clean soils. That’s what it is. But at the same time, we know that, like burning coal, burning coal is clean. If you’ve got particulate matter, that’s why you’ve got scrubbers on the stacks, and that’s what we have in Saskatchewan. We have coal. We’ve got a lot of natural gas, because of our proximity with the pipelines and the way they come from Alberta. So yeah, we’ve got natural gas too, but in reality, that is our resource, and under no circumstances are we going to shut that down? Why would we shut it down?”
SaskPower has committed to add 3,000 megawatts of wind and solar power generation, provided by independent power producers, by 2035. Asked what the Sask United’s thoughts are on that, he replied, “That is just the absolute wrong approach whatsoever. I mean, look at what happened in Alberta in January. We bring on this much intermittent power, we’re going to make our grid even more unstable than it is today. And then, they say they’re, you know, opening it up and having outside investors come in and do it. But then at the same time, SaaS power. Is underwriting the indigenous component to it, which I believe is 30%, so it is going to cost SaskPower money to do it.”
When Pipeline Online pointed out it was the provincial government doing the underwriting, Hromek said, “One and the same.”
“It is going to cost us, there’s no doubt. But it’s more importantly, going to cost. Any time that you’re bringing on expensive, unreliable, intermittent sources of electricity onto your grid, there’s always a cost to it.”
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Nuclear
On nuclear power, the Scott Moe government has made a strong push to build nuclear reactors. Would the Sask United continue that path, or on a different path? Hromek said, “Our stance on nuclear is, we understand that Saskatchewan has the highest grade nuclear or in the world. Yes, we want to expand that production. We would also be looking at doing some maybe enriching. What can we do to incentivize enriching here?
“But as it relates to small modular nuclear, I think that that’s, like, 30 years away, to tell you the truth. I think the best thing to do is to let other jurisdictions figure it out, get the cost of the efficiency of it down to the point of where it works.
“Why are we doing this? That’s the beauty of being from Saskatchewan. You can sit back and you can look at other jurisdictions and see what works for them, and when it when they figure it out, and bring it and import it right here. There’s no issues with that.
“It’s not something that we would push. It’s not a driver. And I mean, when you look at what the Americans are doing on it, and the cost that they’re seeing, they’re seeing close to $30 million a megawatt. … when natural gas combined cycle is only $750,000. Like, they’re not even in the same sphere.
“Plus, you got to deal with the feds. It takes, like, 10 years to get a nuclear (reactor) approved just before you start anything.
“I think, honestly, that this is at this stage in Saskatchewan, It’s a pipe dream. It’s definitely not worth investments in at this point in time for small modular. So, it’s definitely not a priority to us.
“A priority to us is to fight the Feds and ensure that we can keep our coal plants running as long as we have coal, keep the investments flowing into, that such that they don’t get mothballed early because there’s no repair and maintenance capital allocated to them, and to keep pushing natural gas as well.”
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Power mix
Asked how Saskatchewan’s power mix would look 10 years from now under a Sask United government, Hromek said, “Saskatchewan’s power mix 10 years from now still looks like coal and natural gas. And hydro? We’ve tapped out a hydro. Now they want to be focused on irrigation up in which they don’t even have capacity for that. So there’s no hydro capacity.
“No, it’s, it’s the existing coal we have, and natural gas and federal government be damned.”
Carbon tax
“Because, realistically, as the costs are going up, like, for example, the carbon tax is politically dead. It’s a politically dead thing. What’s happening now is people are starting to realize that the carbon tax and Net Zero are one in the same thing. So that’s why Scott Moe, it’s a smoke and mirror show when he’s saying he’s against the carbon tax, but he’s pushing SaskPower to be for Net Zero. You can’t be for them both. They think they’re wanting the same thing. It’s the demonization of carbon dioxide.
“And our party, myself, we do not believe in the demonization of carbon dioxide. That will be the end of Saskatchewan as we know it. That would be catastrophic for the province, that will kill agriculture, that will kill oil and gas. It will kill industrial production. And frankly, I don’t think the people of Saskatchewan want to go back to a horse and buggy.”
In conclusion, he said the Sask United’s full platform, called The Blueprint for Change, is available online at SaskUnited.ca.
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—-
This is the text from the Sask United policy platform, verbatim:
ENERGY & RESOURCES
SCRAP NET-ZERO AND RECLAIM OUR WEALTH
Promoting responsible resource development with fair royalties can ensure that the benefits of our natural wealth reach every corner of our province, rather than just benefiting multinational corporations. The current approach, such as the regressive, job-killing Net-Zero program increases the cost of living without impacting global emissions. It’s time to harness our resources for the people of Saskatchewan.
1 COAL & NATURAL GAS
Our energy policy leverages Saskatchewan’s abundant natural resources to power our province and unlock its full potential. Coal and natural gas will be used to produce affordable electricity until reserves are depleted, with energy plants operating well beyond Scott Moe’s Net-Zero by 2050 agenda. Coal and natural gas will remain a cornerstone of our energy strategy, ensuring reliable and affordable energy is available to build a thriving, self-sufficient, and market-driven economy.
2 SCRAP NET ZERO & INEFFICIENT GREEN ENERGY
The current governments investments in wind and solar projects have proven to be inefficient failures consuming billions of taxpayer’s dollars with limited returns. We will end costly and economically destructive green energy projects proposed by Scott Moe’s Net-Zero by 2050 agenda. We will always put the people of Saskatchewan first, prioritizing local needs over global agendas.
3 WEALTH FROM OUR RESOURCES
We recognize the rarity and global demand for Saskatchewan’s world class potash reserves. As a result, potash must be priced accordingly and reflecting its true value – ensuring that Saskatchewan people reap the economic benefits of their natural resource wealth. The wealth generated from potash and other resources need to benefit the Saskatchewan people first and foremost, rather than being siphoned off to global markets. Corporations profiting from production need to pay their fair share. We will reopen the royalty framework on potash to ensure the province and its people have a fair deal.
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https://pipelineonline.ca/lithium-in-sk-part-25-primacy-of-rights-revisited/