OIL PRICE CRISIS ‘REAL AND PRESENT DANGER’ TO NDP

Notley government’s tough talk will do little without a major reversal of fortune

If you’re one of those Albertans who follow the ups and downs of oil prices more than the hockey standings, you’ll know the province’s crude is losing about as often as the Edmonton Oilers these days.

A look at the market numbers tells the tale, and you don’t need to be an economist to understand.

Near the top of the table is the price for West Texas Intermediate, which traded at around US$57 a barrel on Monday.

Way behind is Western Canadian Select — the stream that makes up much of what is produced in Alberta — which was valued at about US$20 a barrel. That’s actually an improvement from prices of below US$15 last week, but in general WCS has been falling steadily this fall, largely due to oversupply and a lack of pipeline capacity.

It’s the bargain of the century the province never intended to have.

Just how to characterize this mess is something of a debate at the legislature right now, with some politicians unsure whether to break out the C-word.

As in crisis.

Energy Minister Margaret McCuaig-Boyd called the prices “absurd” but was hesitant to go further.

Premier Rachel Notley was less cautious, telling reporters Monday that the situation had reached a crisis level. I recall her using the word only once before, in her televised address two months ago.

“This price gap is a real and present danger,” the premier added Monday.

Notley was talking about an economic crisis, but the term could apply equally to a political disaster-in-the-making for her already teetering government.

Keep in mind the province based its 2018-19 budget by assuming an average WCS price of US$46.

The government isn’t scheduled to give another fiscal update until later this month, but you can imagine the effect if the commodity continues to trade at $25 to $30 below projections.

The province’s estimated deficit, most recently pegged at $7.8 billion this year, could begin to balloon in a variety of ways.

Not only would a prolonged price slump mean less royalty revenue into government coffers, but there would also be damage to corporate and individual income.

That, in turn, would mean less tax revenue for the province, which may also find itself having to spend more on social support programs.

Notley’s government can ill afford — fiscally or politically — to see the deficit climb back into the $10 billion range, despite her insistence the province is still on track to return to a balanced budget by 2023.

Yet there doesn’t seem to be a simple response within the province’s control — though a number of options have been proposed.

These include: Mandatory oil production cuts to relieve the oversupply, pushing Ottawa to allow more crude to be transported by rail, and addressing inefficiencies in how oil traffic is managed in the pipeline network.

Making matters more difficult is industry players are divided on which of those uninspiring options to pursue.

Cenovus Energy and Canadian Natural Resources Ltd. like the idea of temporarily cutting output, while Suncor Energy and Husky Energy reject it.

And there are real doubts around how much authority or flexibility the province has to even attempt a quota system.

It’s not much different than handling an overcrowded bus by telling half the passengers they have to get off, or it can go only halfway to their destination.

In the hopes of finding common ground, Notley announced the appointment of three “envoys” to collaborate with industry leaders.

University of Calgary researcher Robert Skinner, deputy energy minister Coleen Volk and former chief of staff Brian Topp will have their work cut out for them, not only in getting industry players with differing interests to agree but also in finding solutions that will offer anything but incremental gains.

Almost everyone believes the real solution to the bottleneck is new pipelines, particularly the Trans Mountain expansion to the West Coast.

We all know the limbo in which that project sits. Notley said Monday she is hopeful shovels will be in the ground next fall, though that is likely optimistic.

And that means rancid prices could drag on for a while yet, including into the election campaign next spring.

For Notley, tough talk against Ottawa, the appointment of envoys and the announcement of an energy upgrading unit amounts to little more than window dressing. It’s an attempt to show Albertans the government is doing something, anything, when the reality is there isn’t much that can be done at the provincial level.

To revisit the hockey analogy, any team mired in such a pronounced slump would already be trading for prospects and preparing for next season.

The problem for team NDP is there likely won’t be a next season, not without a quick and sustained turnaround.