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article imageOp-Ed: Alberta government policies may have caused the oil price crisis

By Karen Graham     Nov 25, 2018 in Politics
Alberta - The street outside the Calgary Hyatt was teeming with pro-oil pipeline activists on Thursday while inside the hotel, Justin Trudeau was speaking before a crowd of business people. Alberta's oil crisis is serious — but this may be a self-inflicted wound.
According to The Tyee, bitumen prices are low because the Alberta government has known for more than a decade that its oil sands policies were setting the stage for today’s price crisis.
While Albertans are worried — and frustrated — over the province's problems not being met with enough urgency, they worry about their jobs and what any long-term effects the low oil prices will have on the economy going forward.
"People don't realize how much the energy sector contributes to the economy... it supports families and it supports Canadians," Minh Nguyen, 39, who works in the sector, said at Thursday's rally.
Over the past year, we have seen Premier Rachel Notley threaten British Columbia over the province's resistance to the Trans Mountain pipeline extension, to the point that the Alberta government proposed boycotting B.C. products and made threats of cutting off supplies of gasoline, diesel and other petroleum products to the neighbouring province.
Alberta has blamed their current economic problems on environmentalists and other provinces, but The Tyee suggests this is really a self-inflicted economic problem.
The 2007 Alberta Government report
The Alberta Department of Energy issued a report on the market and pricing of oil sands bitumen in 2007. Not only did the report speak of the lack of risk mitigation strategies available to the province regarding the problems of marketing and moving the heavy bitumen, but there was also a warning.
The report warned that oil sands bitumen prices could eventually fall so low that the government's royalty revenues would be at risk, something Alberta is experiencing today. The province was encouraged to add more value to its bitumen by upgrading and refining it into diesel and gasoline to avoid the coming price plunge.
What did Alberta do with the report? Not very much. They continued to keep the royalties low while encouraging continued oil sands development.
With pipelines at full capacity and barrels of oil being stored on site, there is a glut of oil production going on right now, yet new companies are opting to open new sites to produce even more product.
In the U.S., pipelines are also full as U.S. producers continue to flood the global market and refineries are going at full capacity. Many experts are saying that with the Alberta government's poor policies, it has shot itself in the foot.
What's causing the crisis?
Basically, it all comes down to the difference between Western Canadian Select bitumen-blend crude and New York-traded West Texas Intermediate oil. The "differential" has widened to $40 a barrel. If this differential were to last for a year, it would create an Alberta royalty shortfall of about $4 billion, Phil Skolnick, an analyst at Eight Capital Research, said on Thursday.
This is the fundamental issue, according to Scotiabank Economics. They explain there are not enough pipelines to move the crude produced in Western Canada to the U.S. Gulf Coast. This has widened the discount received for Canadian crude relative to U.S. varieties as Canadian barrels need to be marked down for the higher cost of transportation.
Calgary-based Titanium Corp. is partnering with Canadian Natural Resources to extract titanium and o...
Calgary-based Titanium Corp. is partnering with Canadian Natural Resources to extract titanium and other minerals from oilsands waste.
Titanium Corp.
Typically, oil sands crude sells at a $15 to $25 discount, compared to West Texas intermediate. It also costs oil sands producers extra because the crude has to be diluted with a high-cost, gasoline-like product known as condensate. According to a recent government report, it can cost oil sands producers $14 to dilute and move one barrel of bitumen and condensate through a pipeline.
There is another issue with the oil sands crude. It is a sulfur-rich heavy oil that is expensive to transform into other usable products. This means complex and expensive refineries are needed, like those in the U.S. This has resulted in Alberta's provincial treasury losing money.
In May this year, an RBC report pegged the loss at $500 million a year, while a more recent study estimates the losses could be as high as $4 billion annually.
So it comes down to the issue of halting — or at least curtailing — production until the glut is resolved. Premier Notley has hired three experts to look at the problem. However, in the meantime, the province should also take a closer look at its policies before blaming others for their woes.
This opinion article was written by an independent writer. The opinions and views expressed herein are those of the author and are not necessarily intended to reflect those of
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