Oil cuts a nec­es­sary evil for a province wounded by Ot­tawa

Fort McMurray Today - - COMMENT - DON BRAID

The im­po­si­tion of oil pro­duc­tion cuts in Al­berta isn’t just the sign of a province in trou­ble. It’s proof of a coun­try in trou­ble.

The Not­ley gov­ern­ment is do­ing this be­cause it’s the only way to force up prices and be­gin clos­ing the extreme price gap be­tween Al­berta oil and West Texas crude.

No other author­ity in this na­tion — no province and cer­tainly not the Trudeau gov­ern­ment — is will­ing to help staunch rev­enue losses of $80 mil­lion a day. The feds call it a “cri­sis,” yet do noth­ing.

Not­ley’s gov­ern­ment is ordering pro­duc­tion cuts to­talling 325,000 bar­rels daily, 8.7 per cent of the cur­rent pro­duc­tion to­tal.

That will kick in Jan. 1 and is ex­pected to last un­til the end of 2019, eas­ing off as stuffed stor­age be­gins to drain out.

This ac­tion is by its na­ture clumsy and in­tru­sive. It’s a nec­es­sary ex­er­cise in ab­sur­dity — ordering some of the world’s most ef­fi­cient oil pro­duc­ers not to pro­duce oil.

The cuts pe­nal­ize in­dus­try play­ers who are them­selves vic­tims of the price col­lapse. It drives a wedge be­tween small and large com­pa­nies. The small­est firms aren’t af­fected.

The cuts are like the an­cient med­i­cal prac­tice of leech­ing. If enough blood is re­moved, the pa­tient might just get bet­ter.

But such is the dan­ger that nearly ev­ery­body agrees these cuts are nec­es­sary. Given that re­al­ity, the plan seems rea­son­able and well-con­sid­ered.

If it works, the gov­ern­ment ex­pects the price gap to close by about $4 per bar­rel “rel­a­tive to where it oth­er­wise would have been.”

That seems like a small ef­fect, given that the real-world gap has run as high as $40. But even a $4-per-bar­rel gain would re­coup $1.1 bil­lion in gov­ern­ment rev­enue over one year.

Over time, other fac­tors such as rail car pur­chases and the com­ple­tion of Line 3 are ex­pected to fur­ther close the price gap. Not­ley is also fo­cus­ing on di­ver­si­fi­ca­tion through new re­finer­ies.

But as most Al­ber­tans know, the long-term so­lu­tion is com­ple­tion of the Trans Moun­tain ex­pan­sion, which Ot­tawa has man­aged both to buy for $4.5 bil­lion, and then rad­i­cally de­lay through in­com­pe­tent con­sul­ta­tion.

Only af­ter that pipe­line opens for busi­ness — if it ever does — will ship­ping ca­pac­ity fully line up with pro­duc­tion, and fi­nally lib­er­ate west­ern Cana­dian oil from the U.S. mar­ket.

Ja­son Ken­ney’s United Con­ser­va­tive Party solidly backs the out­put cut, while blam­ing Not­ley for much of the trou­ble that led to this day. He doesn’t fail to men­tion that some of her min­is­ters and MLAS used to be an­tip­ipeline ac­tivists.

This mea­sure is al­ready be­ing com­pared to Al­berta’s pro­duc­tion and ship­ping con­straints in the 1980s, when On­tario and the fed­eral gov­ern­ment tried to pi­rate the in­dus­try out of Al­berta.

With­hold­ing oil and gas was very ef­fec­tive in that strug­gle. When for­mer premier Don Getty re­fused to sign gas ex­port per­mits, the On­tario premier, Bill Davis, was soon on the phone beg­ging for mercy.

But in those days, the fight was over who got the money.

To­day, it’s about whether there will even be any money.

The Trudeau Lib­er­als’ cam­paign to grad­u­ally sup­press the Al­berta in­dus­try has been wildly suc­cess­ful, far ear­lier than they ex­pected, ef­fec­tively sup­press­ing value and squeez­ing down in­vest­ment.

The gov­ern­ment of the na­tion has en­sured that all the vic­to­ries go to no-oil forces. Even these pro­duc­tion cuts will look like a win to them.

The his­tory of this cri­sis is clear.

First, the Harper Con­ser­va­tives messed up the North­ern Gate­way ap­proval, and then the Lib­er­als can­celled the project al­to­gether.

The Lib­er­als ef­fec­tively killed the En­ergy East project by chang­ing the en­vi­ron­men­tal rules dur­ing the ap­proval process.

The fed­eral court that stopped Trans Moun­tain on Aug. 30 laid spe­cific blame on shabby fed­eral con­sul­ta­tion.

Now, B.C. will ben­e­fit from a huge liq­uid nat­u­ral gas ter­mi­nal at the pro­posed Gate­way port, Kiti­mat.

Ot­tawa’s favouritism to­ward B.C. has been sick­en­ing, es­pe­cially as the Hor­gan gov­ern­ment con­tin­ues its ef­fort to con­trol all as­pects of bi­tu­men trans­port in the province.

As Al­berta deals with its deep­est cri­sis in nearly 40 years, one that’s largely in­flicted by fed­eral power, Ot­tawa ob­sesses over the clos­ing of one car plant in On­tario.

This is how the coun­try works for Al­berta these days. Not well at all.

JA­SON FRANSON /THE CANA­DIAN PRESS

Al­berta Premier Rachel Not­ley speaks dur­ing an an­nounce­ment of a manda­tory cut in oil pro­duc­tion to deal with a price cri­sis that is cost­ing Canada an es­ti­mated $80 mil­lion a day, in Ed­mon­ton on Sun­day, Dec. 2, 2018.

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