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Taking the plunge
Alberta’s new energy minister has long history as industry lobbyist, legal advisor
Gary Park for Petroleum News
Alberta’s Energy Minister Sonya Savage is getting a baptism of fire as she decides whether the newly installed government of Premier Jason Kenney should proceed with leasing rail tanker cars at a cost of about C$3.7 billion.
In her favor is a master of laws degree and a highly acclaimed record of employment with pipeline company Enbridge and the Canadian Energy Pipeline Association.
Those jobs put her in the frontlines, but not necessarily in the public spotlight, of battles over such major projects as the failed Northern Gateway pipeline plan to export 525,000 barrels per day of oil sands crude to Asia, lobbying the Canadian government on a variety of issues and dealing with fierce legal challenges from environmentalists and First Nations.
“I had a front row seat to watch the action unfold,” she told the Globe and Mail. “I saw it play out against every single energy project that was moving through the system.”
Seen as obvious choice Given her credentials, Savage was seen as an obvious choice for the energy portfolio, backed by several industry leaders who believe she was well suited to a complex, volatile portfolio.
No one will have to wait long to assess her abilities and skills as she is asked to make a choice between the previous government’s decision to lease 4,500 rail cars from Canadian Pacific and Canadian National railways, in hopes of increasing crude shipments out of Alberta by 120,000 bpd and easing some of the current pipeline bottlenecks.
Kenney vowed during the election campaign to scuttle the deals with CPR and CNR, even though a number of producers had endorsed the idea.
Savage told the Calgary Herald that the new government is now weighing its options.
“We are looking at a number of legal opinions and looking at the contracts ... everything from rail capacity contracts, to the lease of rail cars, to the loading and terminal contracts,” she said.
“The details are pretty complicated.”
Producers might take over Energy consultant Greg Stringham, a former vice president of the Canadian Association of Petroleum Producers, said it is possible that producers might even be interested in taking over the government contracts - an option that CNR Chief Executive Officer Jean-Jacques Ruest agreed could be a solution.
Stringham studied the crude-by-rail or CBR issue for the previous Alberta government last year at a time when few producers showed any willingness to sign on to five-year rail shipment contracts, pinning their hopes at the time on final approvals for the Trans Mountain expansion along with Keystone XL and Enbridge’s Line 3.
CPR has brushed off any concerns that the Kenney government could cancel its leasing deal, with company Vice President John Brooks telling analysts that the CBR contract, underpinned by strong fundamentals, could last at least another two or three years.
“Just like we would do with any customer, (the CBR contract) was negotiated in good faith and we feel good about it,” he said.
Curtailments under review As part of the CBR probe, Savage has to take into account how long to continue the curtailment of oil production quotas imposed by the government of Premier Rachel Notley.
That mandated cut, designed to ease pressure on pipelines, began in January at 325,000 bpd, affecting 28 producers. It has since been eased slightly.
It hasn’t helped that the Line 3 project to restore 360,000 bpd of shipping capacity has been delayed and could by some estimates raise CBR demand to 500,000 bpd in the 2019-20 winter, compared with just 132,000 bpd in February.
Savage said many of the energy issues facing Alberta are “inter-related and complicated, (but) Alberta’s future prosperity depends on getting those decisions right.”
Kevin Birn, director of Canadian oil sands at IHS Markit, echoed her view that the complicated, sensitive issues amount to a “high pressure system” that includes a rapid increase in oil storage levels in Western Canada to a record 37.1 million barrels, counter-balancing the stated objective of production curtailments by reducing storage levels.
Producers have made the point that curtailment is a tool the government needs to have at its disposal but should only enact with care to prevent a return to destructive Canadian heavy oil price discounts.
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