Alberta Politics

A Made in Alberta mess brewing

The NDP government needs to make rapid and meaningful changes to their approach to oil curtailment and managing the oil price differential, or they run the risk of doing further damage to our energy sector.

I was part of the Alberta Party team that first called for curtailment in the Legislature and media. (I have since left that position and speak only for myself now).

With an oil differential that was exceeding $40 per barrel at times, Albertans were almost giving away their resources so fast that we couldn’t get them out of the province, and we were literally running out of places to put it.

The root cause of all this is the ineptitude of both Conservative and Liberal governments at getting the export infrastructure in place that is sorely needed to market Alberta’s resources beyond the US.

An effectively executed curtailment program would have been broad-based, have moderate exceptions for small producers to protect their viability and account for long term production numbers. This is what the NDP promised when they announced the program.

Somewhere along the way, the calculation formula was amended to include a producer’s highest monthly production, putting some producers at a significant disadvantage compared to others.

This also had the effect of drawing down the differential far below the projected target of $15-20.

One might argue that is good news, except we don’t have a pipeline, as stated above.

The economics of shipping by rail add up to an additional $7-15 dollars per barrel (depending on who you talk to) to get the product to market. When you hit $10 differentials, it no longer makes sense to ship oil by rail, and so producers have once again started to stockpile produced product, putting us back with the same problem we were trying to solve.

The government needs to work collaboratively with producers and react more nimbly to market conditions to be able to ensure that the economics of oil by rail still make sense. Government reacting nimbly… good joke I know.

On that front, I was perplexed by the NDP decision to expand the scope of the Alberta Petroleum Marketing Corporation – a crown corporation to buy and sell/export oil product by rail. This is where ideology gets in the way of doing what’s right.

Fortunately, the governments in Edmonton and Ottawa were able to optimize pipeline capacity and reduce the need for up to 7000 rail cars as a stop gap until a pipeline comes online.

The government announced that instead they would be leasing 4400 rail cars from both CP and CN and purchasing oil then shipping it to refineries on those leased cars.

That’s right. The government is now in the business of buying and selling oil. What could possibly go wrong?

While the Premier insists their economic analysis and projections show a net revenue of $2.2 billion dollars to the Province, it’s hard to have confidence in the budgeting abilities of a government that continually blows its own budget annually by upwards of a billion dollars, and with no guarantees that they have buyers for their products, they are taking on significant risk on the backs of taxpayers.

It would have been better to facilitate leased cars and allow companies to purchase space on them to export their products on their own. Adding a government middle man has rarely ever resulted in more efficient or economic outcomes.

Of course, the UCP was just as quick to make an ideological folly as they quickly responded with a promise to review and or cancel the contracts. This is the same stupidity the NDP employed with the cancellation of and meddling in the PPA Agreements, and as that has shown, it is likely going to cost Albertans infinitely more in cancellation penalties, and court costs.

When we have both a government and an opposition that shoots first and asks questions later, without thinking through the unintended consequences, Albertans lose.

Unfortunately, no matter who wins the spring election, it seems Albertans will be stuck paying the piper, for a Made in Alberta mess.

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Author’s note: a previous version of this blog erroneously stated that the NDP government had created the APMC. Under this government the scope of the APMC has expanded, but it has existed since its formation in 1974.