Alberta considers targeting ‘air barrels’

Oil companies overbooking pipelines

CALGARY With the Canadian economy losing out on $80 million per day due to heavily discounted oil prices, the Alberta government is weighing a number of options to resolve the crisis, including closer scrutiny of companies that overbook on clogged pipelines.

Alberta Premier Rachel Notley said Monday squeezing what are known as air barrels off the pipelines in the province was one option being considered as oil from the province is trading at US$40 discount to global prices.

“The efficient use of pipelines as they contribute to our overall takeaway capacity has been one topic of discussion,” she told a press conference Monday.

Air barrels result from oil companies or traders booking more pipeline space than they physically need, so that pipelines are not full even when more oil is being produced than the network can accommodate.

Separately, documents reviewed by the Financial Post also show the province is considering giving itself the power to scrutinize oil shipping data on pipelines and railway cars moving in the province.

The data would allow government officials to determine which companies are taking up pipeline capacity through contracts, but not actually using the space. The province could then question firms deemed to be responsible for those air barrels. The threat of additional regulation could reduce the incentive for those oil companies to over-nominate capacity onto scarce pipelines.

The province’s energy ministry did not respond to questions about the documents that offer recommendations to address the oil price gap.

At the press conference, Notley said squeezing air barrels out of the pipeline network “is certainly one of the things that will be discussed in more detail” as the province ramps up consultations with industry on methods to fix the problem. She added there “has been disagreement” on how effective the solution could be.

One wrinkle is that the solution cannot be implemented immediately, and would be limited to oil moving within the province as the National Energy Board federally regulates export pipelines leaving Alberta.

The province’s current mines and minerals, public utilities and pipeline acts also do not give the provincial government power to force producers to disclose trading data, which many firms consider commercially sensitive information.

Notley said she has appointed three experts to work with the energy industry to find ways to close the oil price gap. She will travel to Ottawa and Toronto next week to make her case.

The province is looking for solutions “in a two to four-week horizon” and has not ruled out any option, Notley said.