NO QUICK FIX TO OIL GLUT
You know things have hit rock bottom in the oilpatch when two of the industry’s big players are practically begging for government intervention. But unlike certain aircraft companies and automakers in Quebec and Ontario which have benefited from billions of Canadian tax dollars, Cenovus and Canadian Natural Resources are not asking for bailouts, sweetheart loans or subsidies.
They’re pleading for the province of Alberta to impose production cuts on their own industry to reduce a glut of oil so bottle-necked by inadequate pipeline and railway infrastructure that what crude can flow out of the province sells at Black Friday-style discounts. Last week, the differential between Western Canadian Select bitumen-blend crude and New Yorktraded West Texas Intermediate was US$41.75 a barrel, with WCS crude selling for US$14.
The price plunge of Canadian crude isn’t just an industry concern; it’s robbing Alberta and federal coffers. One estimate says a $40-differential costs Alberta $40 million every day.
On Monday, the Notley government announced three special envoys charged with developing short-term solutions to the differential and a program to fast-track diversification of the energy industry.
As for curtailing oil production, Premier Rachel Notley didn’t rule it out but noted that the tactic lacks consensus support from the oilpatch. Companies such as Suncor insist market forces will solve the problem on their own. Ironically, the market has been trying to do just that for nearly a decade by building more pipelines — but government interference and regulatory failure has thrown a wrench in the works.
The Trudeau government killed Northern Gateway, a pipeline to the West Coast that had been approved by the National Energy Board. Energy East, a pipeline to the Atlantic coast, was cancelled by the company proposing it after the NEB moved the regulatory goalposts. And despite Ottawa buying the last pipeline project standing, the Trans Mountain expansion remains in limbo after a court ruled there was inadequate consultation with Indigenous communities.
The special envoys announced Monday by the Alberta government may produce some shortterm relief and diversifying the energy industry may lessen the differential’s impact in the long term — but neither is a satisfactory answer to our bottle-necked oil.
As for the proposed mandated production cut, consider that a non-starter given the lack of industry solidarity and the complexity of putting it in place. The only viable and effective long-term answer to Alberta’s oil glut is building more pipelines. Unfortunately, that means there will be no quick fix to this crisis.