Quick fix for Alberta's oil woes may be sorely needed — but not so easily found
With steep discounts on Alberta oilsands crude hitting Canada's energy sector hard, the economic cost continues to climb by tens of millions of dollars each day.
The contagion, as economist Peter Tertzakian calls it, is also spreading to other grades of oil, potentially threatening billions in spending and, once again, putting jobs on the line.
Such risks aren't waiting well down the road, either.
"Immediate," said Tertzakian, executive director of ARC Energy Research Institute, on CBC's Power & Politics this week.
"I'm talking, again, a matter of three or four weeks. We already have a number of companies that I've seen, in their boardrooms, cut their spending for the winter."
It's no wonder then that Premier Rachel Notley is looking for some kind of rapid solution. Finding one? That's something that will test both the industry and her government.
This week, Notley charged three envoys with the task of working with experts and executives on finding a salve. She's expecting updates every couple of days for the next two to four weeks.
"We're absolutely treating this as a short-term process," Notley said Monday.
The problem is that simple fixes that could staunch the bleeding quickly have proven elusive so far.
More crude shipments on rail will help, analysts say. Improving efficiency of the pipeline network — ensuring users don't book space they don't need — could be another potential tool.
Longer term, it's hoped more pipelines will help, but the closest one to completion is Enbridge's Line 3, which isn't expected to be ready until about this time next year.
So Notley's envoys will perhaps hope someone is sitting on a clever solution that will please everyone — and fast.
Of course, they already know one way to address the problem and it's the opposite of an "easy" fix.
For the past few weeks, several oil executives have been urging Notley to impose temporary production cuts on the industry to clear the oil glut and pipeline bottlenecks that have weighed heavily on prices.
The price of Western Canada Select has been tracking roughly $40 US below the American benchmark price, West Texas Intermediate, for weeks. Typically, it might track $12 to $15 below WTI.
Initially a problem for heavy oil, the battle for pipeline space is dampening prices for other grades of oil.
Mandated cuts is an idea that has the backing of at least two big oilsands players, Cenovus Energy and Canadian Natural Resources, both of which are already pulling back on production.
It's an extraordinary request from an industry with a reputation for eschewing government intervention.
But supporters of the output strategy blame political setbacks for the failure to build new pipelines and say government must step in to correct the resultant market failure.
The oilpatch is not a monolith, however. There are competing interests, goals and strategies.
On the other side of the debate are Canada's three largest integrated oil producers: Suncor, Imperial Oil and Husky Energy. And they're not interested in hearing about mandatory cuts.
"The market is working," Husky spokeswoman Kim Guttormson said in an email.
"Pipelines and other transportation solutions are required to clear the market and eliminate bottlenecks, and we believe the best option is to advance pipeline solutions.
"Market intervention comes with an unacceptably high level of economic and trade risk."
Certainly, the government would have to consider what signal it would send to the broader market if it did step in.
So far, as Tertzakian notes, the debate has largely been a capitalistic one: Does government intervene?
But there is another party to this issue: the resource owner.
This includes the provinces, their citizens and, more broadly, Canadians, who benefit indirectly through taxation. Billions of dollars are at stake in the form of taxes and royalties.
"So it requires collaboration between all the stakeholders," Tertzakian said. "Oilsands companies — and the parties within the oilsands companies that are sort of duking it out — the non-oilsands companies, the provincial governments and the federal government."
Some will ask whether oil companies, and their investors, can be reasonably expected to take one for the good of the team. Building consensus among such a group sounds like a monumental task.
Yet, you can add Alberta conservatives to those hoping companies across the sector can be persuaded to make voluntary production cuts.
UCP Leader Jason Kenney lauded firms that reduced production voluntarily, saying they acted "commendably."
"These efforts should be matched by all producers," he wrote in an open letter to Notley on Monday.
"The resource that they are developing belongs to all Albertans, who have a right to expect that producers will not act in a way that makes Alberta poorer."
But there's no whiff of consensus for such a quick fix and Canada's crude price woes carry on.