“We are essentially giving our oil away for free.” – Premier Rachel Notley
To address the ongoing oil price crisis in this province, the Notley government is imposing a mandatory 8.7-per-cent production cut – about 325,000 barrels a day – for the first time in 38 years.
The premier has called it “one of the toughest decisions we will make as a province.”
The year-long curtailment, effective Jan. 1, will be spread across all producers.
The price of Western Canadian Select rallied almost instantly, proving this difficult decision is one the NDP should have made months earlier to address a crisis the government says is costing an estimated $80 million daily.
Now, the number of barrels of oil sitting in storage is still growing and the price of Alberta oil – while better than it was a week ago – is still low.
Since oil prices depend on a variety of factors, there are no guarantees the province’s short-term measure will drive them any higher and to better levels that can be maintained.
Notley said the short-term cut, which has garnered mixed reviews from the energy sector, is aimed at stabilizing the market and staving off job losses. She emphasized in this week’s announcement that the widening price differential threatens Alberta’s economic recovery.
The government said curtailing oil production temporarily is expected to narrow the differential by at least $4 per barrel and add an estimated $1.1 billion to government revenues in 2019-20.
But this price crisis requires a long-term fix that will ensure Alberta’s oil flows consistently to world markets. The responsibility for that solution falls directly on the feds – a message that Notley delivered during Friday’s first ministers’ meeting in Montreal.
The NDP decision to chop production, something the United Conservative Party and Alberta Party have been calling for, ramps up pressure on the Trudeau government to construct new pipelines to tidewater ports.
The glut of oil combined with the lack of transportation options to get the product to markets where it can fetch a profitable price is unacceptable.
In May, the Liberals spent $4.5 billion to purchase the Trans Mountain pipeline to ensure it gets built. In August, a federal court ruled the expansion project could not go ahead due to a flawed environmental review and Ottawa’s failure to consult meaningfully with First Nations before giving the project the green light.
During an appearance on CTV’s Question Period earlier this week, and prior to Notley’s directive, federal Innovation, Science and Economic Development Minister Navdeep Bains said, “We’ll do whatever we can to help the oil and gas sector.”
He also said the Liberals have demonstrated their commitment to an embattled energy industry with the Trans Mountain acquisition and the pledge to get it built in “a timely manner.”
But those words are ringing hollow as Alberta oil producers continue to struggle with what Notley called “ridiculously low” prices.
At least the province's three-pronged plan to address the oil industry crisis, which also includes the purchase of 7,000 railcars to ship 120,000 barrels a day, signals an understanding that immediate action is required.
But ultimately, Notley’s measures will prove futile if the Trudeau government, like previous governments, fails to step up and boost this country’s pipeline infrastructure.
