Notley continues push for pipelines, oil upgrading as price discount takes a toll

Pushing for pipeline expansion and upgrading oil remain top priorities for Alberta Premier Rachel Notley as the province continues to be hammered by steep discounts to energy prices.

Speaking to municipal officials today at the Rural Municipalities of Alberta fall convention in Edmonton, Notley again emphasized her support for pipeline expansion as the Canadian economy continues to lose revenue due to price discounts.

“The Canadian economy will lose $80 million (today) and we will lose $80 million tomorrow, the day after tomorrow and every day after that as long as the price gap continues,” she said.

“This is fiscal and economic insanity.”

Alberta oil has been selling at a large discount recently because there is oversupply and not enough pipeline space to move it out fast enough. Alberta prices have been as low as $14 a barrel, even though U.S. prices are hovering around $57 a barrel.

The key solution to close the discount would be constructing more pipelines, though the Trans Mountain Expansion has been stalled by the courts. As well, Notley believes getting more oil upgraded in the province would help the economy because it wouldn’t have to rely as much on shipping raw product.

At the conference, she announced the province is doubling its support for a program that encourages investment in upgrading petrochemicals to things like plastics, gasoline and fertilizer. The program allows companies to receive provincial royalty credits or loan guarantees for upgrading purposes.

The program has in been in place since 2016 and has already spurred investment. According to the government, it’s resulted in construction of Inter Pipeline’s $3.5 billion complex east of Edmonton.

More companies are taking notice of the program, she added. The province has received 23 applications.

Once the province makes a decision on which application to go with, she expects total private-sector investment to be $20.6 billion. Once they are operating, she said, they could generate approximately $284 million each year in revenue for the province.

“A made-in-Alberta upgrading strategy is more than a series of initiatives, it’s a mind-set … that says we don’t have to settle for second best,” she said.

“We don’t have to pull our resources from the ground and sell them for pennies on the dollar. We have the resources, the people and the ambition to build Alberta by making it in Alberta.”

While rural communities largely depend on agriculture for their local economies, they do still rely on revenues from oil and gas, said Al Kemmere, president of Rural Municipalities of Alberta.

Kemmere said rural communities haven’t yet totally recovered, but thinks having pipeline expansions to tidewater would provide stability.

As well, he said he thinks it’s good in principle to upgrade more oil in Alberta because it would allow for job growth and keep people working.

“Our people are finding jobs and that is a good indication, but I wouldn’t say we are out of the recession,” he said.

“I think we are working out of it.”

In her speech, Notley said that while job numbers and economic growth is up, there is still more work the province needs to do in order for everyone to feel like they’ve recovered.

She said the province needs to bring down the unemployment rate. As well, she said people need to feel like they have opportunities and stability.

“That’s the kind of certainty that we have to be able to deliver to Alberta families,” she said, but added that cuts to health and education aren’t the way forward in providing that certainty.

As for the price discount, Notley faces a tough decision on whether to mandate production cuts to curtail the oversupply of oil or to let the market work itself out. Companies are split on cutting production, though the premier has appointed three envoys to offer potential solutions.

Notley has also been pushing Ottawa to get more oil moving on rail to deal with the oversupply. She said agriculture exports would still get priority over oil and gas, though energy would come second. It isn’t clear what would potentially be bumped off the tracks if more room was made for oil.

United Conservative Party leader Jason Kenney said in a news release he is calling on energy firms to voluntarily reduce production to address low prices until inventories are cleared. He blamed current government policies for the issue.

“There appears to be a consensus in the industry that such action would require a total reduction of some 250,000 barrels per day,” he said. “Several producers have already commendably acted to reduce production voluntarily. These efforts should be matched by all producers.”

Contact jeremy.simes@producer.com

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