Tuesday , May 11 2021

Varcoe: Alberta can not have a $ 10 bumper for oil: "Notleaf

Rock, meet a difficult place.

Prime Minister Rachel Notlei is in an unsuccessful position as Canadian oil luggage is split over the province's issue of reducing production to address the defective oil pipeline system and the cost of raw materials in the basement.

Some large producers, such as Canadian natural resources and Cenovus Energi, believe that the government should use its powers to mandate the temporary reduction of oil production.

Refiners that benefit from lower raw material prices, such as Suncor Energi, Imperial Oil and Husky Energi, insist that market forces will solve the problem, not the hard-working government.

The province has so far tried to keep the debate at the key level.

Now it can be seen that this issue emerges into a full-fledged public bureaucracy between the two powerful sides.

Speaking Thursday, Notlee opened her options.

The discount for Canadian Select (VCS) heavy crude oil, which is about $ 40 a barrel, is a "very, very serious problem" for the industry and the province, and "we know that we have to work very quickly to solve the problem," she told reporters in Calgary.

It seems that this implies that the government might be willing to take measures, as other solutions – waiting for new pipelines or oil exports – by rail – will take months to start.

"The industry has a lack of consensus on the best way forward," added Notle.

"My job at the end of the day is to be here for people in Alberta. This resource is a resource belonging to all Albertans, so we can not run it from the country at a price of $ 10 a barrel in a really long period of time."

Again, this seems to mean reducing is an option.

The provincial vault is one of the biggest losers of the wide oil price difference – VCS dropped below $ 14 a barrel on Thursday, a record low – and recent ejection is reduced to fees and taxes paid by manufacturers.

But then this remark comes from the prime minister.

"It's not an easy case, both sides make very good points," she said.

"Our job is to do our research and look at which approach is best and to look at other options … which are at our disposal – that perhaps the parties are able to find more consensus – which will also lead to the kind of outcome we are looking for."

Well, if you are seeking a consensus, the government that has entered in, like OPEC, to reduce production of 200,000 barrels per day (bpd), does not look like a magical elixir for success.

Imagine talking between the government and CEOs of oil companies trying to determine who has to close oil and how long.

Government Lougheed used a system of permitted levels of production a few decades ago, but would this mechanism be contrary to modern free trade agreements?

That's unclear.

It also seems that the province should change some of the existing laws that currently permit pro-rationing because it does not include bitumen or heavy oil.

As Notlei admitted, it is a "complex conversation."

Alberta estimates that the differential cost of oil caused by pipeline shortages costs the Canadian economy about $ 84 million a day, including $ 18 million in the province.

Here's the fun fact that we put everything in perspective: the implicit price of bitumen today is half the price of a bottle of water or pop.

On a chart released Thursday, analyst RBC Capital Markets Greg Pardi acquired the price of Snapple, Coke and Evian in relation to the barrel of Western Canadian Select crude.

The price for bitumen such as molasses – adjusted to reflect the costs associated with thinner – is lower.

"We attach (implicitly) the price of bitumen in Alberta to about $ 0.83 – or less than one half of the retail price of Diet Coke, Evian and other drinks," Pardi wrote.

It would be ridiculous if it was not so harmful to people whose jobs rely on the industry or the landscape, which requires energy revenues to pay for schools, hospitals and public services.

Analyst Phil Skolnick of Eight Capitale said Thursday that a voluntary cut-off report on production has already announced that companies will cut about 140,000 bpd of oil production, which should normalize raw records in western Canada in less than three months.

A wider closed program would speed up the process.

The schoolboy estimates current price differences, if they stay, would cost Albert about $ 4 billion a year.

This is not just an economic argument. There is also a huge political bill that the government needs to consider.

If the NDP government reduces production and takes away investors – and future capital investment – because of the fear of central planning risks, it could come with steep political prices, just months before the next provincial elections.

"This is dangerous from multiple perspectives," said political analyst David Taras at Mount Roial Universities.

"I suppose she does not do this unless some other players come in."

But that did not stop both sides not to speak.

"In order to protect the interests of all Canadians, the company would support the Alberta government that temporarily makes available a compulsory reduction in production," said MEG Energia Executive Director Derek Evans.

Husky Energi, an integrated manufacturer that has recently launched a hostile offer to take over MEG, feels quite different.

"The market is working," Kim Guttormson from Huskey said in an e-mail. "Market intervention comes with an unacceptably high level of economic and commercial risk."

Finally, the province could adopt several options in a tandem.

A solution that includes federal and provincial governments investing in locomotives to deliver more oil from Alberta seems to be a simpler, albeit slower, plan.

Last week, a business proposal to the federal government regarding railway was proposed, and is being studied by Ottawa.

When asked about the differences, the prime minister said that we should expect to see something from the province "within a few weeks, perhaps sooner."

It's a short time to make a very important decision.

But the landscape – like oil – does not want to get uncomfortably stuck between a wall and a hard place longer than it needs.

Chris Varcoe is a columnist Calgary Herald.

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