Skip to main content

Alberta is eyeing royalty breaks on future production to spur supply cuts in the province’s oil industry as Premier Rachel Notley tries to reduce a glut of crude that has swamped markets and sent prices plunging.

Alberta is weighing incentives and credits – including the prospect of a royalty holiday – to get producers to reduce output against a proposal from parts of the industry to impose across-the-board production cuts, said a person familiar with the deliberations. The Globe and Mail granted anonymity to the person because they are not authorized to speak publicly about the private discussions.

Alberta’s heavy crude prices have dropped faster and farther than falling U.S. and global oil prices in recent weeks, squeezing profits of some of the sector’s biggest players and forcing others to curtail production.

Story continues below advertisement

Read more: Why Alberta’s latest oil-price plunge is unprecedented

Prices for extra-heavy crude have plunged due to acute pipeline constraints.

This has prompted calls for relief from an industry and province that have long touted their free-market credentials. Ms. Notley has appointed three experts to consult with industry executives on ways to help solve a problem she says is costing the Canadian economy $80-million each day.

A spokeswoman for Ms. Notley declined comment on Tuesday.

The prospect of a mandated supply cut has opened a deep rift in the industry. Major producers such as Cenovus Energy Inc. and Canadian Natural Resources Ltd. have urged the government to step in to address what they insist is a market failure.

But big rivals such as Imperial Oil Ltd., Suncor Energy Inc. and Husky Energy Inc. oppose intervention because their refining operations benefit from cheap crude. They have warned that such a move could provoke a backlash from the United States.

This fall, the price gap between Alberta’s heavy oil and the U.S. benchmark oil price topped a record US$50 a barrel. Prices have improved somewhat, but the discount is still double levels typically seen by the industry, sapping revenue ahead of what is normally the busy winter drilling season. Oil sands barrels for future delivery fetched about US$17.81 in Tuesday trading, according to Calgary oil broker Net Energy Exchange.

Story continues below advertisement

The Alberta Premier is scheduled to address the Canadian Club, a forum for high-profile speakers, on Wednesday in Ottawa. She has asked the federal Liberals to subsidize costs of purchasing rail cars to transport the province’s crude under a plan estimated to cost about $3-billion.

In Alberta, United Conservative Party Leader Jason Kenney is scheduled to address possible government responses to the industry’s problems at a news conference on Wednesday.

Ottawa has so far balked at acquiring trains to ease the glut of crude. In Calgary Tuesday, Finance Minister Bill Morneau sought to deflect criticism that the Liberals aren’t doing enough to address the province’s woes, saying he understands that low oil prices are a national concern.

Sandip Lalli, the president of the Calgary Chamber of Commerce, questioned whether Alberta’s concerns are resonating beyond the province, especially in Ottawa. “There’s a political disconnect,” she said.

“The message from the federal government is that it’s all about Alberta when they’re in Alberta, but when they aren’t in Alberta, I’ve never heard them say that $80-million is lost daily from the economy due to the current price of oil. That’s over $3-million an hour and that isn’t translating across the country,” she said.

Elizabeth Cannon, president of the University of Calgary, commented on the speed with which Ottawa responded to the news Monday that about 3,000 jobs will be lost when General Motors closes a plant in Oshawa, Ont., compared with the federal response to more than 100,000 job losses in Calgary’s energy sector through the downturn since 2014.

Story continues below advertisement

“There is not a week that goes by when we don’t think of what we can do to improve the situation,” Mr. Morneau said in response to Ms. Cannon.

Ottawa purchased the Trans Mountain pipeline for $4.5-billion and has plans to expand the conduit to carry nearly three times more oil from Edmonton to Vancouver for export. However, Mr. Morneau could not say when construction on the expansion would start.

Report an error Editorial code of conduct
Tickers mentioned in this story
Unchecking box will stop auto data updates
Comments

Welcome to The Globe and Mail’s comment community. This is a space where subscribers can engage with each other and Globe staff. Non-subscribers can read and sort comments but will not be able to engage with them in any way. Click here to subscribe.

If you would like to write a letter to the editor, please forward it to letters@globeandmail.com. Readers can also interact with The Globe on Facebook and Twitter .

Welcome to The Globe and Mail’s comment community. This is a space where subscribers can engage with each other and Globe staff. Non-subscribers can read and sort comments but will not be able to engage with them in any way. Click here to subscribe.

If you would like to write a letter to the editor, please forward it to letters@globeandmail.com. Readers can also interact with The Globe on Facebook and Twitter .

Welcome to The Globe and Mail’s comment community. This is a space where subscribers can engage with each other and Globe staff.

We aim to create a safe and valuable space for discussion and debate. That means:

  • All comments will be reviewed by one or more moderators before being posted to the site. This should only take a few moments.
  • Treat others as you wish to be treated
  • Criticize ideas, not people
  • Stay on topic
  • Avoid the use of toxic and offensive language
  • Flag bad behaviour

Comments that violate our community guidelines will be removed. Commenters who repeatedly violate community guidelines may be suspended, causing them to temporarily lose their ability to engage with comments.

Read our community guidelines here

Discussion loading ...

Due to technical reasons, we have temporarily removed commenting from our articles. We hope to have this fixed soon. Thank you for your patience. If you are looking to give feedback on our new site, please send it along to feedback@globeandmail.com. If you want to write a letter to the editor, please forward to letters@globeandmail.com.
Cannabis pro newsletter