Oil Price Discount Bringing Alberta To It’s Knees

Things have gotten so bad that premier Rachael Notley has written an address to Albertans in major newspapers such as the Calgary herald where she details the problems facing our beleaguered oil industry. Notley lays out the predicament we are in and the possible solutions, although none are particularly good.

There appears to be only two solutions if you can call them that. First the government can force oil companies to reduce production in the hopes that the excess oil sitting in storage will be drawn down enough to increase prices at least a bit. The other more radical solution being pursued by the government is to buy rail cars and locomotives to increase the amount of oil being moved out of Alberta on trains.

From an industry standpoint, there are supporters for both ideas. Companies like Cenovous and CNRL support the idea of cutting production because they are only in the business of producing oil and are held hostage to the price differential, while Imperial Oil and Suncor are against the idea because they have refineries and gas stations and continue to be profitable. They are actually benefiting from the low price of crude because they can convert it to gas and diesel which they can sell at a decent price. Should gas prices still be around $1.00 per litre with oil prices so low?

While it may seem that the radical environmentalists have won the war they have been waging to shut down the Alberta oil sands, getting more oil to market with trains is definitely not environmentally friendly. The risks of a spill from a derailment is much higher than it would be with a pipeline, not to mention the dangers of all that oil burning near or in a populated area. This is what happened in Lac Magantic Quebec in 2013 when 47 people were killed and many others were wounded physically and mentally. So, if the environmentalists really care about the environment, they cannot claim a total victory, at least not yet.

Are there any other solutions out there? What about trucking the oil out of Alberta? That is happening, but the capacity of a single truck is not that much with only about 250 barrels fitting into a tanker trailer, while a train with 100 cars can hold anywhere from 60,000 to 100,000 barrels. Trucking is also much more expensive than rail or pipelines since each truck needs a driver and burns fuel to get to its destination. It seems that most of the oilfield trucking capacity is used to move oil shorter distances within the province.

It all comes down to one basic fact - pipelines are by far the best way to move oil but politicians only care about being re-elected, so they constantly do the math on which seats they could gain or lose depending on the decisions they make. If voters in Vancouver, Toronto, and Montreal, don't want pipelines, there will be no pipelines. Also, the radical environmentalist have a lot of money and influence and have embedded themselves in many governments including the provincial NDP and the federal Liberals. Trudeau has said he wants to phase out the oil sands, so can we really believe he wants a pipeline built? Does the rest of Canada care enough to force the Liberal government to find a way to get at least one pipeline to be built? I wouldn't hold my breath.