There’s an interesting conundrum happening in Alberta, where the premier and industry leaders are talking about production cuts owing to the supply glut and lack of refining capacity in the US being responsible for near-record lows for Canadian exports. The problem of course is whether the premier should use powers that haven’t been exercised since the days of Peter Lougheed, or if oil companies should voluntarily reduce their own production – and if they do, does this constitute price-fixing? There isn’t any easy solution to any of this, and it’s not just build more pipelines – they would only need to be pipelines to tidewater in order to find markets not hampered by the current refining shutdowns in the US, and that are prepared to take heavy oil and diluted bitumen. It’s also a bit on the unfair side to say that it’s simply “regulatory and political” challenges – as we’ve seen from successive court decisions is that attempts to take shortcuts and to weasel out of obligations is what’s causing delays and to have permits revoked. In other words, part of the problem is self-inflicted, and they try to hand-wave around it by crying “national interest” as though that makes it better.
Here’s a lengthy but good explanatory thread from Josh Wingrove, and it’s well worth paying attention to, because there’s a lot of demagoguery floating around about the issue, and it pays to be informed about why prices are low, and why it’s not something you can wave a magic wand to fix.
https://twitter.com/josh_wingrove/status/1062817943812218894
How bad is it? Bad. On Labour Day, a barrel Canadian heavy oil was selling for $45 U.S. (down already from $55 in July).
Now, it's selling for $15.75. A drop of two-thirds in two-and-a-half months. pic.twitter.com/NLIIETzVxp— Josh Wingrove (@josh_wingrove) November 14, 2018
This came to a head last month when Rachel Notley, the Alberta premier, led a closed-door meeting that hinged largely on the issue, sources tell me. It basically pitted oil producers against "integrated" ones that also have transport and refining capacity.
— Josh Wingrove (@josh_wingrove) November 14, 2018
Also out of luck is Alberta — royalties are obviously much lower when prices are low. It's desperate times already for the Alberta treasury and this isn't helping.
— Josh Wingrove (@josh_wingrove) November 14, 2018
Of course, looming large in all of this is a feeling of we-wouldn't-be-in-this-mess-if-we'd-gotten-another-big-pipeline. KXL, TransMountain, Gateway, Energy East, whatever. No new pipes + loads of new production = problem.
— Josh Wingrove (@josh_wingrove) November 14, 2018
Advocates of a forced cut say it would be temporary — maybe only a few months. Wait until supply levels come down and storage space opens up and maybe the price plunge stops. Maybe prices even recover.
— Josh Wingrove (@josh_wingrove) November 14, 2018
Imperial Oil opposes intervention, we're told. Their CEO said this month: “Our view is you live with the consequences of your decisions in your investments and we're quite happy that we are an integrated and a balanced company.''
— Josh Wingrove (@josh_wingrove) November 14, 2018
In the meantime, companies are already cutting production on their own. That'll be pretty messy, and brutal. Whomever has the highest-cost barrels will be forced to take them offline, cut production, probably cut jobs.
— Josh Wingrove (@josh_wingrove) November 14, 2018
In the meantime, regardless of what you think about WHETHER Canada should sell oil, it's selling oil at a near-record discount to U.S. prices, which are falling themselves.
Doesn't look to be an easy fix.
— Josh Wingrove (@josh_wingrove) November 14, 2018