Source: ARC Financial Institute.
“Tone at the top matters, and investors are uncertain as to whether Canada wants to be in the oil and gas business in any meaningful way.” – Mark Scholz, drillers association
Tone at the top does matter, and in Calgary on Thursday Rachel Notley got it right — and Justin Trudeau didn’t. The Premier spent the preceding week announcing provincial moves designed to help the struggling Alberta energy sector, and yesterday it was carbon tax relief for fuel used in drilling rigs. The Prime Minister said he understands that industry is “in crisis” and he hears that “very, very clearly,” but made no announcements.
Both Alberta and Ottawa are agreed on the importance of building the Trans Mountain Expansion pipeline to tidewater as soon as possible. And to give Trudeau his due, his government bought Kinder Morgan Canada for $4.5 billion and will spend billions more completing TMX, which is no small investment.
But the pipeline is years away from carrying crude oil. Meanwhile, Alberta producers selling Western Canada Select in Hardisty are almost giving away their heavy crude.
As Notley said in a speech to the drilling contractors association at the Petroleum Club, “in the short-term, we can’t afford to do nothing. I am not about to sit back and let billions of dollars get sucked into American bank accounts. That money should be going to Canadian schools and hospitals, not American yachts and private jets.”
The industry crowd applauded when she announced that not only would clear fuel for rigs be exempt from the carbon tax, but companies would be eligible for rebates dating back to the January 1, 2017 introduction of the carbon levy.
The tax relief isn’t much, but it’s something tangible.
Another tangible proposal from Notley: “I am also asking the federal government to prioritize the shipment of crude by rail after grain until new pipelines are built. The bottom line: Ottawa needs to join Alberta to help ease the economic pain that Alberta played no part in causing, but is affecting the well-being of the entire province and country.”
As part of that plan, the Alberta government wrote Trudeau asking Ottawa to share in the $350 million capital cost to buy enough new tanks cars to ship 120,000 b/d to 140,000 b/d – the volume needed to clear the pipeline overload – and $2.6 billion of operating costs associated over three years.
After his speech to the Calgary Chamber of Commerce, the Prime Minister was asked about supporting more crude by rail shipments and sidestepped the question, according to the CBC.
“There are many things that are beyond our control here, whether its the refineries down for maintenance, whether it’s what’s happening overseas around oil prices or whether it’s the fact that we are constrained and have been for a long time to sell 99 per cent of our oil to the US,” he told reporters. “We are working very hard to change that.”
Not hard enough, according to several thousand pro-pipeline protesters who milled about outside while Trudeau announced support for affordable housing.
And not hard enough according to Alberta Finance Minister Joe Ceci, who blasted Trudeau for not including any line item expenditures designed to help Alberta in this week’s budget update.
Notley told the drillers association that if Ottawa isn’t prepared to help with more crude by rail, Alberta will go it alone: “…if Ottawa won’t come to the table, then we’ll get it done ourselves. Our oil – the oil you drill – the oil that is the natural inheritance of each and every Albertan…will get to market one way or another for the best price possible. And if it takes buying trains to do it – then that’s what we’re going to do.”
She hopes to have the extra rail cars in operation as early as July.
The rail proposal can be added to other Notley announcements this week: the appointment of three envoys to canvas energy leaders about curtailing oil production until prices recover; another $1 billion to support Alberta petrochemical investment (on top of the $1 billion announced in February) and grow the domestic market for oil and gas; doubling the program to speed up commercialization of bitumen partial upgrading to $2.1 billion; and Thursday’s announcement that the Alberta government is already entertaining six partial upgrading proposals totalling $5 billion of investment that would create 10,000 construction jobs.
If investors are wondering if Canada is serious about being in the oil and gas business, Rachel Notley is sending the right messages. Justin Trudeau, on the other hand, needs to up his game.
He’s already under fire for mishandling the inter-governmental conflict over Trans Mountain Expansion that led to Canada owning a pipeline company, as well as the new environmental assessment regime set out in Bill C-69 that critics say is anti-pipeline and other federal climate policies like the upcoming Clean Fuel Standard.
Coming to Calgary armed with only a few generic tax breaks was probably not a great idea by the Prime Minister’s Office. Before he returns for his next visit, the Prime Minister would do well to come up with some concrete ideas to provide immediate relief until Alberta’s market access crisis is resolved in a year or two with more pipeline capacity like the completion of the Line 3 upgrade or Enbridge’s 500,000 b/d of “other projects” reported in an Energi News exclusive story several weeks ago.