National Post (National Edition)
How Alberta can get the oil sector back on track.
Albertans own their oil and gas resources, a fact enshrined in Canada’s Constitution thanks to the leadership of the late former premier Peter Lougheed.
As owners, Albertans need to know they can make choices that get our oil sector back on track.
While media reports focus on companies losing profits and governments losing billions of royalty and tax dollars, individual Albertans could be forgiven for thinking that they are passive victims of an economic disaster beyond their control.
Albertans, and all Canadians, are certainly victims. The federal government’s failure to build pipelines means that, in some cases, Canada’s energy is selling for 75-per-cent less than American oil and costing producers, Alberta royalty income and corporate tax revenue $100 million every day.
U.S refineries are buying up Alberta’s oil, dirt cheap, and turning it into full priced U.S. products and profits. Thanks to our failed energy policy, President Donald Trump’s economy is benefiting from cheap Alberta oil.
The oil discount has left Alberta companies no choice but to shift capital investment south of the border. So not only do American refiners make billions in profits buying cheap Canadian oil and selling it at international prices, Canadian jobs are also exported to the U.S. as well.
Imagine if Canadian federal policy forced our beef farmers to charge American fast-food chains 75-per-cent less for Canadian beef but the price of American hamburgers never changed. Or if Ontario auto plants were forced to sell Canadian cars in the U.S. for 75-per-cent off while U.S. dealers kept the same sticker prices.
Canadians should be outraged at the federal government’s energy-policy failure, doubly so when you consider that our oil and gas are our most valuable exports.
So, do Albertans need to be passive and watch as our No. 1 asset suffers under the weight of policy-driven price collapse? The answer is no. We don’t have to be victims, we can choose to act.
What should owners do if an incompetent manager puts the store’s most important product on sale at a huge discount?
End the sale.
How do Albertans end the sale? The medium- to long-term answer is building pipelines and increasing oil producers’ access to rail-transport capacity. But right now we don’t have that much time on our side.
The immediate answer is cutting production to increase the value of our oil. Without new pipelines, our oil is literally piling up in storage and driving the price down.
Some might argue that government intervention is the wrong way to go, that we should always “let the market prevail.” As a conservative, that’s my default position, as well.
But Alberta’s current situation is different in two critical ways:
First, the low price of oil is not driven by a lack of demand, it is driven by government’s failure to permit new pipelines despite the stated political goal of getting Canadian energy to market. This failure is a form of market intervention by government. As with other interventions, it is creating winners and losers, as only a few oil companies have the additional refining capabilities to cushion the blow from the deep discount, while most other producers suffer.
Second, a prolonged distortion created by government policy failure has created a loss of industry activity and is leading to industry consolidation that would not occur in a normal policy environment. Over the long term, this will reduce the number of companies operating in our province, reducing competition for Alberta’s resources and, ultimately, could lower the long-term value of Alberta’s energy reserves.
When markets cannot rebalance and deliver the benefits of competition, Albertans, as the resource owners, should act.
The simplest and most effective action is a government-mandated production cut requiring all producers to reduce the number of barrels they sell into the market. This would raise the price of Alberta oil. As premier, Peter Lougheed did it when the last prime minister named Trudeau was in power, and it’s time Premier Rachel Notley did the same.
If Premier Notley mandated a 10-per-cent across-theboard cut in oil production, it would take approximately 45 days to see the price differential change in favour of Alberta taxpayers. That means that, in a matter of weeks, the price of Alberta oil could almost double.
Importantly, Alberta’s Opposition Leader Jason Kenney, of the United Conservative Party, is offering his support to Premier Notley as she considers how to end the massive discount on Alberta oil. Kenney notes that “these resources belong to all Albertans.” He is right. It is time for all Albertans to come together and do what is best for the entire industry, our province and our country.
To be clear, this type of government intervention should be time-limited and targeted. This is the only short-term solution that will benefit Albertans and the vast majority of Alberta’s oil companies. It is the only way to stop the discounting of Alberta’s oil and keep a diverse and competitive energy sector in our province. And it is the only way to get the sector back on track and stop the loss of billions of taxpayer dollars that belong to Canadians.
Some have said that cutting production will undermine future investment in Alberta. Albertans should look at it another way. Investors want to put their money with smart owners. Will Albertans remain passive in the face of an economic crisis? Or will we act as owners, taking the reins and the steps necessary to protect the core of our national economy? The world is watching, it’s time to act and end the fire sale on Alberta oil.
THE IMMEDIATE ANSWER IS CUTTING PRODUCTION.