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Common issue divides
Trudeau, Notley in Calgary, don’t discuss solutions to Canada’s pipeline bottleneck
Gary Park for Petroleum News
Canada’s Prime Minister Justin Trudeau and Alberta’s Premier Rachel Notley were both in Calgary Nov. 22 amid a deepening crisis for the oil industry, Alberta and Calgary.
Yet they might as well have been ships passing in the night.
Notley spoke to industry executives and Trudeau to the Calgary Chamber of Commerce, but there was no attempt to bring the two leaders together and respond to growing frustration with both and urgent pleas for both to take measures that would reduce the shipping bottleneck that has widened the price spread between Western Canada Select bitumen blend and West Texas Intermediate by US$40-$45 a barrel that is costing producers at least C$80 million a day.
Nutley disappointed Notley said she was disappointed with the Trudeau government’s lukewarm response to her government’s plan for buying additional rail cars to move more oil to market as a hedge against future shipping problems.
Sharpening her attack on the national government, she said it has “the most authority over the ridiculous situation we find ourselves in right now. I would suggest it might be reasonable for them to come to the table.”
Notley said it was simplistic of the Trudeau administration to dismiss buying new locomotives and crude tankers by saying they would take at least a year to enter service by which stage the Keystone XL and Trans Mountain pipeline expansions would be under construction.
Faced with federal inaction on the rail front, Notley said she is seriously thinking about buying hundreds of tanker cars “to help ease the economic pain that Alberta played no part in causing, but that is affecting the economic well-being of the entire province and country.”
Otherwise, the only near-term relief for the shipping crunch will come from the return of U.S. refineries to full capacity and Enbridge’s scheduled started of service in 2019 on its Line 3 to the U.S. Midwest
A month after Notley asked Trudeau to authorize the purchase of more locomotives she said her own government would “do what it needs to, whether we do it by ourselves or with (federal) support.”
No hope of federal action Federal officials were quick to scuttle any hopes of federal action on the rail front, telling the Toronto Star that additional locomotives and crude tankers would not provide a short-term fix.
The best the industry heard from Trudeau was his glib acknowledgement that the oil price situation “is very much a crisis. When you have a price differential that (has peaked at US$50) that’s a massive challenge to the local industry, to the livelihood of a lot of Albertans and I hear that very clearly.”
Trudeau said his government is doing what it can to get the tripling of Trans Mountain capacity to 890,000 barrels of oil equivalent per day built, but since buying the existing system for C$4.5 billion he has done nothing except embark on a replay of regulatory hearings.
He took the chance to take a swipe at the industry, arguing “it isn’t entirely united on the best ways to move forward on how to fix the price differential,” with some producers favoring production cuts and refiners insisting market forces should resolve the issue.
Federal Finance Minister Bill Morneau signaled Nov. 21 that the government does not back Alberta’s call for rail rolling stock, insisting pipelines are the only long-term solution.
“We’ve clearly said that pipelines are efficient, cost-efficient and a safe way for us to get our resources to market,” he told the Star. “If the industry and Alberta choose to find other alternatives than that we understand. But we are focused on the long-term.”
Cost of new cars cited Notley’s request for new rail capacity would carry an additional 140,000 barrels per day, on top of the record 270,000 bpd in September, but federal officials say it would cost C$350 million to purchase the locomotives and tankers and C$2.6 billion to operate them over three years.
The Alberta government has estimated about C$2 billion would be recovered from shippers, along with extra tax revenue from a higher price of oil derived from Asian markets.
Alberta Finance Minister Joe Ceci vented his frustrations with the Trudeau government’s failure in a federal budget update to include Alberta-specific tax breaks, accusing it of “speaking a different language.”
But, in her speech to the Canadian Association of Oilwell Drilling Contractors, Notley offered what was viewed as a token gesture, offering tax breaks for small oil and gas drillers by exempting them from Alberta’s carbon tax.
The exemption, backdated to the start of 2017 when the tax was introduced, is expected to provide a mere C$750,000 to C$1.5 million in relief for the drilling sector.
That followed an earlier announcement that Alberta will offer C$1 billion of incentives to suppliers of feedstock to kick-start petrochemical upgrading.
Meanwhile, CAODC said it expected little improvement in drilling activity in 2019, forecasting an increase of 51 wells to about 7,000, which is down from about 13,000 wells in 2014 before global oil prices slumped.
“Other industries in the same situation would be holding their hands out for a government bailout,” said CAODC President Mark Scholz. “Yet instead out industry has only asked for government permission and support to get our products to market.
“The lack of action and attention by the federal government to this pressing issue is deafening,” he said. “We’re looking for more than that.”
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