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Cozying up to OPEC University of Calgary report sees benefit in closer relationship between cartel and Canada, while stopping short of ‘formal status’ GARY PARK For Petroleum News
There is ample evidence on many fronts of the uncertainty that prevails in Canada’s petroleum industry.
Now the challenge of overcoming low commodity prices and finding new markets for oil sands production has taken a new twist.
A report by the University of Calgary School of Public Policy has urged the Canadian and Alberta governments to develop closer ties with OPEC member countries, including Saudi Arabia at a time when the Middle East kingdom has trouble finding friends anywhere.
The report noted that, based on oil export volumes alone, the interests of Canada and Alberta are no less than many OPEC members.
“Given the importance of the oil sands to the Canadian economy, the federal government should facilitate a closer monitoring of the market, including stepping up its and Alberta’s relationship with OPEC, but stopping short of seeking some formal status with the organization,” it said.
Many observers view Saudi Arabia’s determination to hold the line on OPEC production at the current 30 million barrels per day as a tactic to weaken its neighbors, especially arch rival Iran, which is about to rejoin the global oil market.
‘Potential battle’ Citigroup said OPEC’s refusal to curb the glut of world-wide production is setting up a “potential battle (among shale, oil sands and OPEC producers) for market share” in the U.S. Gulf Coast.
However, Robert Skinner, a former director of policy at the International Energy Agency, once an employee in the Canadian divisions of France’s Total and Norway’s Statoil, and now a senior fellow at the School of Public Policy, told the Financial Post that Saudi Arabia’s strategy is a market-driven action and not some “nefarious geo-political scheming.”
The author of the University of Calgary report said Saudi Arabia, rather than operating as leader of a price-fixing cartel, has allowed market forces to set the price of oil rather than manipulating output and OPEC’s production quotas.
Lukewarm response Whatever the prevailing rationale over the causes of the current oil price debacle, the prospect of Canada seeking closer ties with OPEC attracted a barely lukewarm response within the Canadian industry.
Gary Leach, president of the Explorers and Producers Association of Canada, which speaks for junior operators, said that other than improving its intelligence gathering methods he is not sure what benefits Alberta and Canada would derive from a relationship.
Mark Scholz, president of the Canadian Association of Oilwell Drilling Contractors, said his organization wanted nothing to do with Canada or Alberta becoming another member of OPEC, although he did agree there could be some value in understanding the business strategies of the cartel and its associated governments.
Representatives in 1989 This is not the first time that Canada and Alberta have been invited to play a role in OPEC.
In 1989 Alberta sent representatives to sessions of OPEC and non-OPEC producers and in mid-2003, the OPEC president at that time said he would “be happy to see” Alberta take its place alongside other OPEC observers: Russia, Mexico, Oman and Argentina.
Those events ruffled the feathers of the Canadian government, which controls foreign relations. The senior government was especially troubled when Alberta hinted that it might be open to participating with OPEC in restraining production to bolster oil prices, although the province later backed away from that idea.
Murray Smith, then Alberta’s energy minister, said it would be “important and beneficial for Alberta and Canada to know as much as we can about” OPEC competition, while seeking greater acknowledgement of the oil sands potential in the world marketplace.
In late 2006, another Alberta energy minister, Greg Melchin, and Gary Lunn, then Canada’s natural resources minister, said Canada’s free-market policies would not be traded for a seat in OPEC.
“We will not stray from those principles, even if there is merit in having discussions,” Lunn said.
OPEC’s president at that time, Edmund Daukoru, following a private meeting with Melchin, said Canada might eventually get to the point where it should listen to what OPEC is saying and “maybe, God knows, even engage in a common dialogue” that included sharing information.
Since those two short-lived flurries, there has been no talk at government level of Canada participating in any shape or form with OPEC.
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