■ KEITH GEREIN,
From buying rail cars to production cuts, options are fraught as the bleeding goes on
Crisis. Catastrophe. Five-alarm fire.
Politicians around the legislature have been wearing out the thesaurus over the last couple of weeks in an effort to describe the severe price discount Alberta oil is now suffering on the world market.
As the days have passed with little improvement, both terms and tones have become increasingly ominous.
Those who know me will agree that I am often one of the first to scold the use of unnecessarily extreme language.
But in this case, I’m forced to wonder if the calamitous characterizations are apt.
In recent weeks, while the going rate for a barrel of West Texas Intermediate has been dipping between US$65 and $50, Western Canadian Select has been valued as much as $45 less.
It’s among the worst differentials we’ve seen in a long time.
At times this month, WCS has been so low, the cost to buy a barrel (159 litres) has been about the same as mailing a stack of Christmas cards, ordering a paperback novel or buying a roasted chicken from the grocery store.
If something doesn’t change soon, Alberta’s goose could truly be cooked.
A recent Scotiabank economist report suggested the problem may cost the province’s upstream oil industry between $15 billion and $39 billion next year, while the government potentially stands to lose between $1.5 billion and $4.1 billion in royalties.
That means lost jobs, failed businesses and bigger deficits.
By now, the cause of the issue — oil oversupply and lack of pipeline capacity to move it — is hopefully at least partially understood by Albertans.
Solutions are another matter.
Rachel Notley and Jason Kenney both got up to the podium in different cities Wednesday to offer their own vision for alleviating the crisis.
Notley was up first, giving a pointed speech to the Canadian Club of Ottawa that revealed her government has started negotiations to buy new railroad cars that could transport an additional 120,000 barrels of oil per day.
The announcement may work on a public relations level, to show that her government is doing something in the face of perceived federal inaction. Yet it’s unclear whether an investment in rail will have much
The fact that Kenney publicly announced his proposal rather than simply pitching it to the government behind the scenes is, in itself, a political act.
effect, or any at all.
That because the first round of rail tanker cars Alberta wants won’t be on the tracks until at least December 2019, and full capacity will have to wait until mid 2020.
By that point, economists suggest the oversupply issue and price differential may be in a much better state due to other factors.
Those include the completion of Enbridge’s Line 3 pipeline late next year, and the fact that oil companies have already been making their own arrangements to increase rail shipments.
As for Kenney, he joined calls Wednesday for the province to impose a temporary, but mandatory, production cut among oil producers amounting to 400,000 barrels per day — a strategy that was first advocated by the Alberta Party earlier this month.
That proposal certainly has an advantage over Notley’s in the sense that it is much more likely to have an impact in the short term, but it’s also far from a perfect solution.
The plan is muddied by the fact there is disagreement in the energy industry between companies who have already cut production and those who dismiss the idea.
As well, there are questions around what legislative power the province actually has to enforce a production cut. And Kenney’s target of reducing 400,000 barrels a day may also be an overreach.
The Scotiabank economist report, for example, suggests the goals of reducing both the supply backlog and the price differential can likely be accomplished by a much smaller cut of 140,000 barrels.
Ordering a bigger-than-necessary curtailment could cost jobs and revenue.
It’s good to see both Notley and Kenney offering credible ideas to deal with the crisis. The biggest problem, as always, is politics.
Kenney, for example, says the price differential shouldn’t be handled in a partisan way.
But it’s hard to take him seriously when he and his MLAs use question period every day to blame the NDP, characterize Notley as a “close friend and ally” of Trudeau and slam the party’s past opposition to specific pipelines.
As well, the fact that Kenney publicly announced his proposal rather than simply pitching it to the government behind the scenes is, in itself, a political act. He knows full well it will be harder now for Notley to agree to his plan.
The NDP is no better with its rhetoric.
When asked Wednesday to comment on Kenney’s proposal, Energy Minister Margaret McCuaig-Boyd instead spent most of her time bashing the pipeline record of the Harper government in which Kenney was a cabinet minister.
It’s disappointing and it needs to stop.
If our politicians truly believe we are in the midst of a crisis, catastrophe, or five-alarm fire, they need to start acting like it.