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Alberta Politics

Notley searches for her Lougheed moment by demanding pipelines for Trudeau’s carbon tax

Demanding the federal government help “break the landlock” and support the construction of oil pipelines from Alberta, Premier Rachel Notley and Environment and Parks Minister Shannon Phillips drew a line for Alberta’s support of the Justin Trudeau government’s proposed national carbon pricing plan. In a statement released today, Ms. Notley stated that the Alberta government would not support the federal carbon pricing plan without federal support for increased “energy infrastructure” (a.k.a. oil pipelines).

Rachel Notley Alberta NDP leader
Rachel Notley

There is nothing more Albertan than a good old fashioned political battle between the provincial government and Ottawa over energy issues. Premier Notley may be hoping this standoff could be reminiscent of the heated political disputes that took place between the governments of Premier Peter Lougheed and Prime Minister Pierre Trudeau in the 1970s and 1980s. In the case of Mr. Lougheed, an iconic figure in Alberta politics, political fights with Ottawa can help boost a politician’s popularity at home.

When Progressive Conservative leader Jim Prentice began casting the New Democratic Party as “extremists” during the 2015 election, Ms. Notley frequently turned to quotes by Mr. Lougheed to support her party’s positions on issues like raising corporate taxes.

Ms. Notley’s NDP have been vocal supporters of the expansion of the Kinder Morgan Trans-Mountain Pipeline and the TransCanada Energy East Pipeline since she became party leader in 2014. Now, as government, the Alberta NDP’s support for oil pipeline expansion has contributed to an increasingly deep divide between the national and provincial NDP in this province. The national NDP, with strong support in anti-pipeline constituencies in British Columbia, Ontario and Quebec, has played a much less supportive role in advocating for Alberta’s oil industry.

Brad Wall
Brad Wall

The Alberta government’s criticism of the federal government puts Ms. Notley in the company of conservative Saskatchewan Premier Brad Wall, a constant critic of Ottawa. But unlike Mr. Wall’s government, which has dragged its feet on tackling climate change, Ms. Notley’s government cannot be accused of doing nothing to address climate change. Alberta’s NDP government has led the charge with its flagship ‘Climate Leadership Plan‘ which includes its own carbon tax and an aggressive phasing out of dirty coal-fired power plants.

The Alberta NDP plan enjoys the support of environmental groups and oil and gas industry heavyweights like Cenovus, Suncor, CNRL and Shell.

Meanwhile, opposition groups like the Wildrose Party are literally hoping to rehash the political battles of the 1980s. The official opposition Wildrose Party circulated a meme online today comparing the national carbon tax announcement to the unpopular National Energy Program of the 1980s. The Wildrose Party continues to be fierce critics of the federal Liberals and NDP but party leader Brian Jean has yet to offer any alternative solutions to reduce carbon emissions.

Brian Jean Wildrose
Brian Jean

Ironically, the Wildrose Party’s 2015 election platform proposes to “Ensure Alberta’s standards for CO2 emissions and pollutants are in line with national and international standards.” This statement was written during a time when Stephen Harper was Prime Minister and a national climate change plan was nowhere on the agenda. It is amazing how quickly politics can change in a short seventeen months.

Breaking the landlock,’ which I predict will become the latest political buzzword, is analogous to the “bitumen bubble” that former premier Alison Redford warned Albertans of in a televised address in 2014. Both buzzwords are part of a public campaign to build pipelines that would presumably allow for easier export of Alberta’s oil, and allow the private companies exporting the oil to sell Western Canadian Select at a lower discount rate than in previous years. This probably would not make a significant difference to Alberta until the international price of oil rebounds.

Over the past year, Ms. Notley has shown her willingness to work with Mr. Trudeau on a wide-range of issues. This may have led the Prime Minister to expect he would find an ally in Ms. Notley in his bid to implement a national carbon pricing plan. But by attaching strings to Alberta’s support for a national carbon pricing plan, Ms. Notley is playing a political game that could pay out political dividends at home. In a fight between the Alberta government and Ottawa, as Mr. Lougheed discovered, you can bet that nine times out of ten, Albertans will side with Edmonton.


Here is Prime Minister Justin Trudeau’s speech in the House of Commons today announcing the national carbon pricing plan:

16 replies on “Notley searches for her Lougheed moment by demanding pipelines for Trudeau’s carbon tax”

re DaveBerta said: ‘…and allow the private companies exporting the oil to sell Western Canadian Select at a lower discount rate than in previous years. This probably would not make a significant difference to Alberta until the international price of oil rebounds.’

The discount issue is mostly gone. And there’s more: See this analysis of pipeline capacity below in two posts by Ross Belot, a retired petro industry exec.

If this guy’s correct, then all of us are being snowed to a greater or lesser degree by political parties, both RW, centre, and centre-left like AB NDP, and by the industry and its shills in the corporate MSM.

http://ipolitics.ca/2016/05/02/the-fight-to-kill-keystone-xl-was-a-colossal-waste-of-time/

excerpt: ‘One of the biggest problems for Canadian oil was the discount that developed between the West Texas Intermediate (WTI) price and the world price. In February 2013 this discount averaged almost $30 per barrel. By March 2016 this differential was down to only 66 cents per barrel. Two Canadian companies were largely responsible for closing that gap.’

excerpt: ‘What’s weird about this is that people on all sides of the debate seem to be clinging to the same old myths — that Canadian oil isn’t getting to tidewater, that huge discounts for our oil still exist, that the rejection of Keystone XL was an important victory for the environmentalist movement. ‘

excerpt: ‘For politicians, these myths provide convenient cover — allowing them to champion new pipelines we may not need in order to satisfy that portion of the electorate suffering due to low oil prices.’

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http://ipolitics.ca/2016/04/11/build-a-dozen-pipelines-alberta-it-wont-help/

excerpt: ‘She repeated that message Saturday, asking the convention to support “pipelines to tidewater that allow us to diversify our markets.”

In doing so, Premier Notley just became the latest Canadian politician to play games with pipelines. She’s telling Albertans a pipeline to tidewater can cure what ails the industry. It won’t — it can’t — because the problem a pipeline to tidewater was intended to address doesn’t exist anymore.’

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excerpt: ‘Which brings us back to Premier Notley’s problem. We already have oilsands material at tidewater. The National Energy Board’s lower price forecast (which is much higher than today’s actual price) offers a forceful argument that there won’t be a big enough increase in oilsands production to justify the million-barrel-a-day Energy East line, even by 2040.’
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excerpt: ‘

There are no new markets. Europe cannot run bitumen to any great extent. China and India are options but are just as accessible from the U.S. Gulf Coast as from New Brunswick. There is no need for Energy East — not now, not years from now.

The most disturbing aspect of Premier Notley’s message is her call for federal government support for the project.’

Alberta’s problem is twofold: Its oilsands have been buried by fracked American oil that is both higher-value and cheaper to produce, while longer-term they face marginalization in a world committed to weaning itself off carbon.

So another pipeline isn’t needed; oilsands production won’t be expanding much in the foreseeable future, if it all. Alberta needs to figure out how to make the most of the infrastructure it has in place. Money spent on a pipeline right now would be money wasted. But Notley can’t say that aloud — not while also delivering the bad news on her province’s finances and fighting back against the implications of the so-called Leap Manifesto.;…’

FWIW, I currently support the NDP, but originally a PC during the Lougheed/Getty years.

Here is a link to oil price differentials (WCS to WTI) since 2005. 2016 has the highest average % differential since 2006. As mentioned, transport costs form part of that diff, so we can’t really expect the diff to be 0%. But 35% means $14 less per barrel at current prices. Even cutting the discount to half of that (at 4.4 MMbbl/d produced in Canada) would mean ~$30MM in additional revenue per day, $11Bn per year. Without any WTI increase required.

http://www.baytexenergy.com/files/pdf/Operations/Historical_WCS_Pricing_October_2016.pdf

(Sorry it’s an oil company site, but they have it summarized the best.)

I’d be hugely interested in what Belot’s response to this numbers would be.

I’d bet that a majority of citizens who are trying to sort out what’s fact vs. propaganda on this issue, like me, would appreciate a forum where the Belot’s could respond to the counter-points you and Storrie raise. With some translation as needed for us lay people.

Like I said in my comment above, ‘If this guy’s correct, then all of us are being snowed to a greater or lesser degree.’

I said ‘If’ very deliberately.

His column seemed sensible to me, but I realize I can’t be sure because I’ve no expertise on the topic.

FWIW, Belot’s critique of claims for large price gains due to getting AB bitumen to tidewater have included references to data like this in the Dec 2015 fed. finance dept. study that was leaked. Forecast only a $1.48/bbl gain via Energy East.

http://www.cbc.ca/news/canada/calgary/energy-east-pipeline-memo-benefits-1.3609851

excerpt: ‘”The National Energy Board currently forecasts that WTI will trade at $77.54 and Brent at $81.62 in 2020,” reads the memo, marked secret and dated Dec. 10, 2015.

“In that context … the benefits of the Energy East pipeline would only be $1.48 per barrel compared to oil shipped by existing pipelines to the U.S.’

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excerpt: ‘A pipeline carrying crude to Canada’s East Coast from Alberta was meant to capitalize on the price differential between North American (West Texas Intermediate) and world (Brent) oil prices.

After a drought, signs of new growth in the oilsands
Canada’s energy superpower status threatened as world shifts off fossil fuel, think-tank warns
Energy East pipeline: What you need to know

But that price differential has shrunk significantly since 2012, with OPEC unleashing torrents of oil on the market, Chinese demand weakening and the end of the U.S. ban on oil exports. ‘

The differential price between WCS and WTI is the most important one, but there is little evidence that a tidewater pipeline would reduce that, or a pipeline to Eastern refineries for that matter. The reason there is a price differential is because the quality (or better put effort needed to convert it into end products) of ECS is lower than WTI.

Most refineries are built to handle lighter crudes such as that which traditionally came from Texas, the middle East or conventional Canadian production. There are refineries built to handle heavier crudes from Venezuela in the South Eastern United states and these could refine WCS pretty much directly. Other refineries would either need front end upgrading (to make synthetic crude on par with WTI) or would need to heavily dilute the heavy oil with lighter oils (or diluent but condensate is traditionally super expensive and they try to conserve it.) So it costs more to refine WCS than WTI and as such WCS will always be worth less than WTI, pipeline or not.

Keystone could have relieved some of that by allowing shipping of WCS to the heavy oil processing refineries in the US South East. Theoretically any tidewater pipeline can help a little as it opens the option of using tankers to move the oil to heavy oil refineries but the transport cost will negate a lot of the gains. Without an overall price increase for oil pipeline capacity is not overly helpful.

This whole differential pricing thing brings up the issue of upgraders; Upgraders convert WCS into synthetic crude and the differential between synthetic crude and WTI is negligible. Unfortunately the capital expenditure needed for upgrading is huge and the risk of something upsetting the value add of the price differential is too high without public backing. IE if we do something that reduces that price differential (good for Alberta??) we actually kill off the profitability of upgraders (Bad for Alberta) unless (as in the case of Northwest, which will make diesel) we are making a finished product that we can sell. If the differential price stayed at $15 or higher upgraders would be a profitable investment. When that differential fluctuates all over the map no one can afford the risk.

Thanks for the explanations. Your points about 1) higher refining cost for AB dilbit, and 2) transportation costs are points that Ross Belot has made.

And thanks for the succinct explanation of the cross-cutting issue for local upgrading, unless the product can be sold here.

So Sam, people already told you what matters for Alberta is not so much the price difference between WTI (North America’s light sweet crude benchmark) and Brent (world’s light sweet crude benchmark) and again you copied and pasted the same arguments without much critical examination. Yes, that global differential in light sweet crude pricing is gone, but we still have the same problem with WTI-WCS pricing gap. If you truly lived in Alberta, it’s not that hard to get first-hand information and perspectives from people in the oil and gas industry – this is an oil country after all. Alberta’s oil sands generate ‘medium-weight’ sour crude and NOT light sweet crude.

There is a real pricing disadvantage to WCS on top of the quality differential to light sweet crude. See this excerpt for a practical demonstration:

“Another example is Western Canadian Select versus Mayan crude produced in Mexico. Both are identical in quality. The price difference ($10/bbl) reflects the added transportation costs of getting Canadian crude to refineries in Chicago or Houston. The price discount is therefore reflective of transportation costs and not so much a function of quality.”

http://www.oilsandsmagazine.com/western-canada-select-wcs-crude-oil-definition/

If you click on the link (and yes, it’s an oilsand industry publication but you better be able to justify any criticism based on facts rather than sentiments), there is a graph that shows the API density (a primary measure of ‘heaviness’) and sulfur content (a primary measure of ‘sweetness’) for both Mayan crude and WCS – they are practically very similar in terms of quality and yet the former is priced considerably higher than the latter.

Note that your CBC article includes the following information, which you conveniently glossed over:

“According to the memo, it costs $14 per barrel to ship oil from Alberta to the east coast by rail, compared to $8 if done by pipeline.”

re Surdiga said: ‘If you truly lived in Alberta,’

This sort of chauvinistic defensiveness, irrelevant to the merits of arguments/analyses I share, reflects an attitude that contributes to why some of Canada only listens to Alberta’s woe-is-us stories with half an ear.

But for some it works of course…Preston Manning used it to help generate a political movement, mostly on the victim stance against those evil Easterners.

FWIW: I was born in AB, raised in the Leduc oilfield. Worked and lived here all my life. With the exception of a few months on a rig near Hudson Hope, BC., residing in Dawson Creek. Couple+ years on the rigs, ’79-81, like many rural Albertans in that boom. Some of my family still work on the rigs. Some are unemployed due to the price drop.

So…Does that bio. give me your permission to comment, to share information?

Just for the record. Below is Ross Belot, today, using the oil types comparison of choice of commenters here.

According to Belot’s numbers: AB oil/dilbit is currently getting world price, once quality and transport cost is factored. AB’s energy industry is down due to oil price decline, not pipeline shortages now or in the foreseeable future. Even under the Harper gov’t’s price forecasts.

http://ipolitics.ca/2016/10/19/stats-lies-and-crude-oil/

excerpt: The discount on Western Canada Select (the benchmark for oilsands heavy) to West Texas intermediate (WTI) represents a combination of both the quality difference and the transportation cost from Alberta to the trading hub at Cushing Oklahoma. The Gulf Coast heavy/light discount is roughly $8 per barrel today and is a good representation of the quality difference between WCS and WTI. It takes $7 per barrel to move a barrel of heavy from Alberta to Cushing on Keystone. So the discount we should see in Alberta is $15 per barrel based on world prices and transportation costs.

On October 14 the actual market discount in Alberta was only $14, just a dollar under the theoretical discount. So there is no discount to international prices; if anything, there’s a premium. This has been the case for many months, despite the misleading political rhetoric.

We can’t count on our politicians to counter the myths — they don’t want to argue with people’s beliefs, there’s no political upside to telling the truth. Often they find it pays to play up these energy myths, to tell people it really is all Ottawa’s fault.’
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In short, the NEB’s forecasts, and the related claims by gov’t’s of all stripes and industry assoc’s, are using hugely optimistic price forecasts, and are being propagated on the citizenry via MSM’s stenography.

My parents were born in Alberta before it was Alberta and I was raised smack dab in the middle of it. AND I have voted NDP all my life. AND admired Ms. Notley’s father and admired lots of things she is doing. BUT I love that wonderful, productive BC coast which is one of the most beautiful in the world. I have a grandson who spends time on a shrimp boat in the spring and a son who fishes for salmon in the waters off Sidney and a daughter-in-law who is aboriginal and from Comox – which means my grandson has important ties there. Trudeau promised no tankers off that coast and he had better keep that promise. Both he and Ms. Notley have to put their creative hats on and change our economy so it doesn’t depend on oil.

I have always found it rather ironic that the Danes are some of the richest, happiest people in the world. They have no natural resources, only excellent well educated human ones. And Germany which is an economic power house produces half it energy from renewables. It has no petroleum resources either. It can be done if o9ur leaders are smart and brave enough to do it.

DENMARK THE SIZE OF nova S otia and a population of 5 Million!
Cities that are contained not urban sprawl
As to Germany any they are now in the process of rebuilding there coal fired generation!
The fairy dust is running out!
THE TRANS Mountain tian Pipeline has operated for over 50 years without issue!
The population of Canada is 35 plus million do you sugest we shut down or lower our economy to provide for a few thoasand indigenous ,and your son?

I would suggest that an economy that depends on growth is not sustainable. We are producing just as much oil as ever; pipeline capacity and economics are not letting us increase production anymore. Too much of Alberta’s wealth depends on always growing. We can’t do it forever and now might be the time when we say 4.5 mmbpd is enough; maintain it but don’t grow it.

And you don’t think hundreds more would make a difference. An accident with a cruise ship won’t spill a tanker full of dirty petroleum into the waters.

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