Trains to Alaska. Pipelines to Churchill, Man. New refineries in Alberta. Oil shipments to Saint John. A step back from costly environmental rules.
Alberta's government wants them all.
As pipeline shortages crush its energy revenues, Canada’s energy province is putting its weight behind a wash of ideas – some highly speculative, others already rejected by industry – in hopes it can find new ways to connect crude oil with buyers.
Alberta is offering to cut red tape, considering funding feasibility studies for new projects and negotiating potential energy exchanges with other provinces in a bid to reduce the glut of oil that has driven down the price of Canadian oil and stripped many billions from provincial revenues.
With export pipelines effectively full, the resulting glut has created a pricing spiral: on Friday, Canadian heavy oil sold for nearly $37 (U.S.) below the North American benchmark West Texas intermediate. Alberta Energy Minister Ken Hughes now says the cheap oil is giving “a product subsidy to Americans of $20- to $30-billion annually.” The petroleum industry says that, at today’s prices, it’s more like $15-billion a year.
But the number is large and Alberta, ahead of a March 7 provincial budget that is likely to be grim, is now working to make public numerous proposals it is pursuing in hopes of reversing the situation – even though some say its time would be better spent solving some of the root causes of today’s financial pain.
“We’re not taking any opportunity off the table,” Alberta Finance Minister Doug Horner said in an interview Friday, sitting next to Mr. Hughes on a day in Calgary intended to sell the government’s efforts.
Environmental concerns are largely out, in favour of new ways to move oil. Last year, the province was in the midst of internal deliberations on raising the price of carbon it imposes on some large emitters. Now, it won’t discuss that possibility.
“There’s nothing to report on that front,” Mr. Hughes said. “It’s not on the radar screen.”
Instead, Alberta is chasing a raft of proposals aimed at opening new export markets and increasing the value of Alberta oil. Mr. Hughes is urging companies to process more energy in Alberta, saying Alberta will do anything it can to clear the “underbrush” standing in the way of, for example, a refinery that would add value to discounted oil.
“If we have any proposals from industry that come to us that allow us to add value in this province, we are going to be very keenly interested in that,” Mr. Hughes said. Asked what sort of “underbrush” he would be prepared to remove, he said: “regulatory underbrush, or perhaps cost structure that the province can have an influence over.”
The Canadian Association of Petroleum Producers is not terribly optimistic about the possibility, since refineries are immensely expensive and companies have in recent years largely moved away from producing crude. But Alberta has more ideas. It has discussed a sort of energy exchange with Manitoba, since “they have an interest in selling us hydro. We have an interest in exploring with them the possibility, which is more speculative at this stage, but the possibility of Churchill as an export port for bitumen as well,” Mr. Hughes said.
Companies like TransCanada Corp. have, in the past, looked to possible exports through Churchill, and concluded it would be difficult to build through the hard northern rock. But if going north won’t work, maybe going east will: Alberta is looking to support oil exports through Saint John, which Mr. Horner pointed out is “closer to India than [is] the West Coast.”
Another possibility: Alberta is weighing support of a project to build a massive new rail line to Alaska that could export Canadian oil on trains. The backers of that project, called G7G Ltd., have asked Alberta for $10-million to study the proposal – and Mr. Hughes and Mr. Horner were positive about the idea.
“This is one proposal that I believe is worthy of examining,” Mr. Hughes said. Some in the rail industry, however, have dismissed the G7G idea as a long shot, saying it would be far cheaper to use existing rail lines to the B.C. coast and build an export terminal at Prince Rupert, B.C.
Others say the province may be better to back a longer-term solution with first nations, whose opposition to new pipelines has contributed to the current financial pain. Murray Smith, a former Alberta energy minister who now works in the energy industry, pointed to the deal that helped clear the way for the Trans Alaska Pipeline System. Alaskan aboriginal groups were granted 44 million acres of land and nearly $1-billion (U.S.) before that pipeline was built. In today’s dollars, the number would be higher. But faced with estimates that Canada could forfeit $1-trillion in coming decades by not having sufficient market access, “$15-billion or $20-billion or $10-billion would be nothing more than a rounding error,” Mr. Smith said.
First nations opposition to development, and in particular pipelines, is a problem that “has to be solved,” he said. “You might as well solve it sooner rather than later – and let’s get these pipelines built.”