Oil cuts a necessary evil for a province wounded by Ottawa
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 anti-pipeline 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.
Don Braid’s column appears regularly in the Herald
Facebook: Don Braid Politics
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