Tall Tales From the Oil Patch

Even out here on the Pacific it's not hard to hear the squeals emanating from Athabasca and the Calgary Petroleum Club. The Tar Sands are in trouble. Actually the Tar Sands are just fine. It's the operators and their political minions that are feeling the heat of bad, bad, bad markets and a bargain basement resource.

The financial papers and the rightwing media are howling with demands for assistance. What they're really after is more government subsidies. More handouts.

The opening lines of a piece in today's Calgary Herald put it succinctly:

More locomotives. More upgrading. More tax write-offs. But, more importantly, more pipelines.

There's a glut of oil on world markets driving prices down. So, when it comes to the filthiest, highest carbon, ersatz oil on the planet that never attracts more than junk oil prices, the solution is government subsidies and pipelines to carry ever more of what the market doesn't want. Makes sense, doesn't it?

Premier Rachel Notley is discussing a series of steps to remedy the plight of Alberta heavy crude, which sold for less than US$18 a barrel on Tuesday. The light oil blend Edmonton par sold for less than half of U.S. benchmark prices, according to data from Net Energy.

On Monday, the premier announced a team of three envoys will sit down with energy company executives to come up with options to tackle the crisis. 

They will have to grapple with the divisive idea of government curtailing oil output as some producers call for the province to take such steps.

...In the 2017 federal budget, the Trudeau government altered tax treatment that allowed petroleum producers to deduct all expenses from discovery oil and gas wells in one year — something that’s available in the United States — moving Canada’s oilpatch instead to a 30-per-cent annual deduction rate. 

“We are competing for capital with the U.S., as well as other jurisdictions,“ said Tim McMillan, head of the Canadian Association of Petroleum Producers. 

“This has been something that has helped drive investment into the U.S., at the expense of Canada.”  

All of these issues — rail, tax treatment and resource upgrading — will help, but ultimately they don’t get to the heart of the matter: Canada needed more pipelines years ago and Ottawa didn’t deliver. 

What's missing from the Calgary Herald op-ed and from the woe is me reports in the rightwing media is any mention of the real problem, the one south of the border. Bitumen simply can't compete with the glut of cheap, conventional oil out of the US. The title of Scott Barlow's piece in today's Globe captures bitumen's predicament.

Texas holds the 'worst nightmare' for OPEC and Alberta.

Bloomberg’s Javier Blas is among the best media sources on the energy sector but today he doesn’t have good news for investors in the sector, 

“The map lays out OPEC’s nightmare in graphic form. An infestation of dots, thousands of them, represent oil wells in the Permian basin of West Texas and a slice of New Mexico. In less than a decade, U.S. companies have drilled 114,000. Many of them would turn a profit even with crude prices as low as $30 a barrel … August saw the largest annual increase in U.S. oil production in 98 years, according to government data. The American energy industry added, in crude and other oil liquids, nearly 3 million barrels, roughly the equivalent of what Kuwait pumps, than it did in the same month last year.’ 

“Texas Is About to Create OPEC's Worst Nightmare” – Blas, Bloomberg 

“Oil bounces above $63 after slide, but glut worries persist” – Reuters

Good oil. Cheap oil. Abundant oil. Adding, in one month, roughly what Kuwait pumps at full bore.

This factor seems to be overlooked in the screams and howls for more government-financed pipelines, more government royalty and tax deferrals, in order to pump junk tar onto glutted world markets. You'll not find that mentioned in the National Post, the Calgary Herald or the Financial Post.

If you find it impossible to believe that the Tar Sands are perched on a platform of outright lies and government incompetence, I'd recommend you read Dave Climenhaga's post on Andrew Nikiforuk's address to the Parkland Institute's annual conference.

...oversupplying a global market that doesn’t need more oilsands bitumen will only lower prices, argued the author and journalist who has written about Alberta’s energy industry for three decades. “That’s Economics 101.”

Instead, the Notley Government has adopted an energy development policy little different from that of preceding Conservative governments or the United Conservative Party Opposition, Mr. Nikiforuk asserted, arguing that such an approach is more likely to intensify the province’s economic pain than ease it. 

Shielding the industry from market forces through rock bottom royalties that effectively act as subsidies and using pipelines to create a supply glut of low-quality refinery feedstock is incompetent governance, whether it’s done by New Democrats or Conservatives, Mr. Nikiforuk said.

...Mr. Nikiforuk said rock bottom royalties – the policy of the Klein Government perpetuated ever since, most recently by the Notley Government’s 2015 royalty review – essentially subsidizes industry profits, especially those of corporations with their own refining capacity elsewhere. At the same time, it does little for the economy. He said the policy also leaves taxpayers holding the bag for the inevitable clean up – estimated by one credible analysis to be over $260 billion. 

As for the claim more pipelines will result in a narrower price differential thanks to new markets in Asia for Alberta bitumen, Mr. Nikiforuk said, that is a pipe dream that defies the laws of economics.

Never mind, he said, that the single study saying this, done for Kinder Morgan Inc. as a sales pitch when it was the Trans Mountain Pipeline Expansion Project’s sole proponent – and now apparently taken as gospel by the provincial and federal governments alike – “is bogus.”