Savage extends oil curtailment another year. But when will it end?

Breaking news: Trans Mountain today issued “Notice to Proceed” directives to some contracts, construction to begin soon

On Tuesday, the Kenney government extended oil production curtailment to the end of 2020, as inadequate pipeline capacity continues to bedevil the industry. While Energy Minister Sonya Savage tweaked the program a bit, it remains essentially the same. The only substantive difference between the UCP and the NDP on this file? The Conservatives spend more time blaming the federal government for Alberta’s pipeline woes.

Canadian oil exports by rail. Source: National Energy Board.

“While extending curtailment is far from ideal, under the current context, it is necessary,” she said at a press conference. “The reality is at the end of each and every month I have to sign ministerial orders telling private sector companies how much they are allowed to produce. That is absolutely not what we want to be doing beyond the short-term.”

Savage announced that she is raising the exemption limit for curtailment from 10,000 to 20,000 barrels per day. The number of companies affected by the requirement to limit provincial production by 150,000 barrels per day drops from 29 to 13. There are approximately 300 oil and gas producers in Alberta. The government is raising production limits for raw crude and bitumen slightly over the next three months, from 3.74 million barrels per day in August to 3.79 million barrels per day in October.

The only long-term alternative to production curtailment is the construction of more pipelines or devising other ways to get oil to market, such as the Canapux project referenced by Savage in her remarks. Unfortunately for Alberta, three projects (Trans Mountain Expansion, Line 3 replacement, Keystone XL) with a total of capacity of 1.75 million barrels per day have been delayed by legal challenges in Canada and the United States.

Not surprisingly, with a federal election only a few months away, Savage tried to blame Ottawa for the pipeline shortage, claiming the “anti-energy policies of the Trudeau government,” the Prime Minister’s decision to cancel Northern Gateway, and the “untimely death” of Energy East are responsible for industry’s current travails.

“We have seen political failure,” she said. “This is why our government is so focused on taking the necessary steps to stand up for Alberta’s energy sector.”

What are those necessary steps, according to Savage? The $30 million energy war room, a $2.5 million inquiry into “foreign-funded activist” opposition to pipeline projects, legal challenges to Bills C48 and C69, and advocating for TMX.

It’s hard to see how the first three “steps” will release stalled pipeline projects from the legal purgatory in which they currently languish. The fourth is nothing more than a continuation of Rachel Notley’s approach, though with a lot more griping, which led to this Twitter rebuke from Canadian Natural Resources Minister Amarjeet Sohi, an Edmonton MP.

After all the campaign rhetoric from Premier Jason Kenney about how his party would solve the market access crisis, nothing has really changed.

Well, perhaps one thing: the UCP government is going ahead with its election promise to cancel the NDP’s lease for 120,000 barrels per day of rail shipping, some of which would have been set aside for small producers, who have been particularly hard hit by Alberta’s pipeline problems.

“They’re in a divestment process to look for private sector companies to assume them,” she said. “We’re hoping to, to have a clearer picture in the fall.”

Mandatory production curtailment was implemented by the NDP government on December 1 because Alberta was extracting 190,000 barrels per day more than it could ship to market and storage tanks were full. That caused the differential between West Texas Intermediate and Western Canada Select prices to widen. Integrated producers like Suncor, Imperial Oil, and Husky were mostly protected from falling Canadian prices because they maintained profit margins by selling to their American refineries. Large producers like Cenovus and CNRL who were less protected stood to suffer large financial losses, while small producers forced to sell on the spot market faced losses that could have caused widespread business failure within the oil patch.

Everyone recognizes curtailment is just a finger in the dyke. The dam still needs a major overhaul, but now one seems to have a handle on how to accomplish that goal.

Alberta Energy Minister Sonya Savage with Premier Jason Kenney.

Kenney and industry think the answer is returning to some golden yesteryear when pipelines were just another form of infrastructure – easily approved and built with little opposition – no one paid much attention to Greenpeace and indigenous communities were less litigious. Respect the rule of law, leave the National Energy Board as both regulator and overseer of pipeline reviews, restrict who can and cannot participate in those reviews, and above all else, accept that the highest good is supplying global markets with much, much more of Canada’s “responsibly developed energy.”

The only way that strategy works is if Andrew Scheer and the Conservative Party of Canada – which has vowed to give Alberta and industry what it wants – wins the October 21 election. The strategy fails if the Trudeau Liberals form another minority government. It likely fails spectacularly if the Liberals win a minority government supported by the NDP and Green Party, with their much more aggressive climate plans.

There is an alternative.

Instead of looking to the past, instead of emulating the Trump approach to energy policy, the Canadian industry and its supporters could finally accept that the political landscape for hydrocarbons and pipelines has forever changed in the face of the fast-approaching low-carbon future. Having embraced the new energy reality, new market access strategies may be possible.

Ignoring the new reality only guarantees that next year the Alberta oil production curtailment program will be extended to 2021 or beyond.

Note: Readers can find coverage of the Trans Mountain Expansion announcement at the Energy Media website.

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