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A yard in Gascoyne, N.D., which has hundreds of kilometres of pipes stacked inside it that are supposed to go into the Keystone XL pipeline, is shown on April 22, 2015.Alex Panetta/The Canadian Press

Richard Masson is an executive fellow at the University of Calgary School of Public Policy

As Canadian oil prices continue to deteriorate relative to world oil prices, Canada’s oil industry faces one of the most significant crises in decades.

Western Canadian Select (WCS), which is the benchmark price for diluted bitumen produced from the oil sands, traded for about US$13 a barrel on Nov. 15, some US$43 a barrel below West Texas Intermediate crude (WTI). In a balanced market, WCS would have sold for about US$42 a barrel.

Prices for light sweet crude oil from conventional reservoirs and synthetic crude oil (SCO) from the oil sands also continued to fall, hitting prices below US$30 a barrel, a discount of US$30 a barrel relative to WTI when in a balance market the discount should be less than US$5.

Estimates put the lost revenues from these made-in-Canada price discounts in the range of $100-million a day. Think about that for a minute. That is $3-billion a month in lost revenue to Canada’s economy.

We are selling our oil, primarily to refiners in the United States, at a fraction of what it would be worth if we had adequate pipeline capacity to reach these markets. Many Canadian oil producers are not covering their production costs at these prices and as losses mount, they will respond by cutting their capital spending programs, their work forces and their production.

Governments that typically benefit from the corporate income taxes and royalties associated with oil production are facing much lower revenues at a time when they are already under pressure to cut spending to deal with large deficits.

A number of factors have led to the current distressed situation. Several large oil sands projects have been completed after years of construction, adding more than 500,000 barrels a day of production as they reached full capacity.

This as several large U.S. refineries that normally process bitumen from the oil sands have been offline as they do maintenance, reducing demand by up to one million barrels a day. Court rulings delaying the construction of both the Trans Mountain Expansion and the Keystone XL pipeline have added to the negative sentiment. And storage in Alberta has filled up with few places left to physically put the oil.

Better pipeline access through the timely completion of the Trans Mountain Expansion and the Keystone XL pipeline are key to solving the problem. Governments need to improve the process for approvals to remove the uncertainty and delays that have been experienced.

But this will not help in the short term, as each of these pipelines is likely three years or more from completion. Increasing rail loading capacity is part of the solution, and it is expected that rail exports will grow from the recent level of 230,000 barrels a day to 400,000 barrels a day by next summer.

The imminent start-up of bitumen processing at the Sturgeon Refinery in Edmonton will help to absorb 50,000 barrels a day, and the return to full operation of the U.S. refineries once their maintenance is completed will restore an important part of the market.

But with storage so full and prices so low, it is unclear how long these changes will take to balance the market. Producers have begun to cut back their production, with announced reductions from seven producers of between 123,000 and 144,000 barrels a day according to a recent report from IHS Markit Insight.

Two paths forward are being proposed: have the Alberta government intervene in the market to reduce production by all producers in order to balance the market as quickly as possible; or let the market sort out the issue through further individual producer cutbacks.

Both paths have significant risks, and the Alberta government is analyzing them and looking for other options. Whatever the response, great care must be taken to avoid doing more harm than good.

When companies ask governments to intervene in a market place, it is a good indication that there are very serious issues that need to be dealt with.

The cancellations and delays of the major export pipelines that have happened over the past few years are now delivering the body blow that many in the oil industry have been warning about, and the longer-term implications for our country from this crisis are also likely to be significant for investment and for jobs.

Oil production in the United States grew by two million barrels a day in the past year, to reach more than 11 million barrels a day. Canada is losing vast amounts of revenue and shutting in its oil production while the rest of the world profits.

We need leadership to address the dysfunction of our situation so Canada can again be an attractive place to invest for one of our most important industries.