Pipelines biggest obstacle to oil producers: report

The main government policy hurting the competitiveness of Western Canada’s conventional oil producers is insufficient export pipelines, not carbon taxes, an upcoming C.D. Howe Institute report shows. The lack of pipelines to take oil to market reduces the profitability of the average new well by an estimated $600,000, cutting revenue by about $5 a barrel and making some investments uneconomical, according a study being released Thursday. “Construction has yet to start, however, on any major pipeline expansion due to procedural hurdles. These hurdles are likely the largest competitiveness cost for Canadian oil producers relative to U.S. producers,” the study says. “The federal government should ensure that the projects it has approved as being in the national interest are not bogged down by further procedural delays.” In the latest pipeline skirmish, Premier Rachel Notley called an emergency cabinet meeting and blasted the B.C. government this week for trying to stall the Trans Mountain expansion by restricting bitumen shipments until more spill response studies are done. On the other hand, greenhouse gas emission levies have a relatively small effect on the competitiveness of Western energy producers outside the oilsands, the study found. While the Alberta carbon tax is $30 a tonne, it won’t be imposed until 2023 on conventional oil producers, who will then receive most of that money back as a rebate based on their output. “There’s a really smart design to the carbon tax in Alberta, because it’s a two-part system,” said author Benjamin Dachis, the institute’s associate director of research. “Companies with low emissions per barrel will be better off under this system.” His report determined Alberta oil wells have about $770,000 in total costs that are the result of federal, provincial and municipal policies, which also includes royalties and income and property taxes. That’s more than twice such “policy costs” for producers in the U.S., though Dachis said his research didn’t look at whether Canadian companies received larger benefits. He hopes the report will focus discussion on the best way to ensure the Canadian energy sector keeps up with its American competitors. “If we spend more of our time debating things like emission pricing and don’t really look at what it’s going to take to get pipelines built, we’re not looking in the right places.”

There’s a really smart design to the carbon tax in Alberta, because it’s a two-part system.