Skip to main content
opinion

There is some logic to an alliance between Alberta and the U.S., but only if it’s a truly defensive one. On Friday, Jason Kenney, seen here on March 20, 2020, suggested that a co-ordinated cut in production could be in order, an idea that’s increasingly popular down in Texas.JASON FRANSON/The Canadian Press

Max Fawcett is a freelance writer and a former editor of Alberta Oil magazine and Vancouver magazine

Desperate times call for desperate measures, and right now the Premier of Alberta sounds very desperate. At a provincial pandemic briefing Friday, Jason Kenney floated the idea of a closed North American energy market – one that deliberately shuts out foreign suppliers and explicitly targets barrels coming from the two countries that triggered the latest oil price war. “We cannot allow the Saudis and Russians to effectively run us out of the business of producing energy,” Mr. Kenney said.

It’s easy to see why the prospect of Alberta and Texas squaring off against Saudi Arabia and Russia would appeal to Mr. Kenney. He has built his political reputation in the province on his willingness to fight, whether it’s with his partisan political opponents or groups such as teachers, doctors and public servants. The prospect of Alberta saddling up alongside the United States in a battle against rogue international regimes, meanwhile, is the fullest expression yet of Ezra Levant’s “ethical oil” argument – one to which Mr. Kenney has returned repeatedly.

Unfortunately, the math here simply doesn’t add up. In 2018, Canada imported just under 110,000 barrels of Saudi oil a day, while the United States’ imports of Saudi oil have fallen from more than 1.5 million barrels a day in 2014 to as few as 352,000 last November. The Keystone XL pipeline, which TC Energy announced it would move forward with after the Government of Alberta pledged to invest $1.5-billion in it (along with $6-billion in loan guarantees), will send even more Canadian barrels to U.S. refineries.

More important, both Canada and the United States still have ambitions of being major exporters of oil and gas. Shell is building a major LNG facility in Northern British Columbia, while the federal government intends to complete the TransMountain expansion and get Alberta crude to tidewater. The U.S., meanwhile, will have six LNG export facilities up and running by the end of 2020, along with a growing array of infrastructure that has allowed it to boost its oil export capacity to more than six million barrels a day.

Russia and Saudi Arabia are major players in the global natural gas and oil markets – and both would almost certainly react badly to having their exports hit with tariffs or outright bans. In its IPO filing, state oil company Saudi Aramco boasted lifting costs (the cost of getting oil out of the ground) of US$2.80 a barrel, a small fraction of what it costs in Canada or the U.S., while Russia’s are now lower still thanks to the falling ruble.

Does anyone seriously expect, then, that the U.S. would be willing to get into a protracted price war with these two countries – or that it would potentially jeopardize its own economic interests to protect Alberta’s?

More to the point, the blame for this price war belongs as much to North America as it does to the Middle East and Russia. For more than three years, OPEC countries and Russia have been cutting their production to support prices, only to watch as Canadian and U.S. companies rushed to fill the gap that created. Between February of 2017 and 2020, oil production in the U.S. increased almost 50 per cent. And for all the talk of Alberta’s oil and gas industry being constrained by a dearth of pipelines, it still managed to increase production by 15 per cent over the same period. As such, the decision by Saudi Arabia and Russia to stop cutting their production is less a reckless attack on free enterprise than an inevitable reaction to the fact that other countries kept increasing theirs.

There is some logic to an alliance between Alberta and the U.S., but only if it’s a truly defensive one. On Friday, Mr. Kenney suggested that a co-ordinated cut in production could be in order, an idea that’s increasingly popular down in Texas, where a 10-per-cent reduction has already been mooted by state regulators. If they offer a deep enough combined cut, it might be enough to get Russia and Saudi Arabia to stand down – and perhaps even offer up a cut of their own to help oil markets recover from the disastrous impact of the pandemic.

But make no mistake: This would be a form of surrender – and a sobering reminder of how vulnerable Alberta’s economy is to forces it cannot control. The government’s “war room” – which is ostensibly meant to address misperceptions about the oil sands and is apparently exempt from the budgetary concerns that drove the government to lay off as many as 25,000 teacher assistants and support workers – can come up with all the fact sheets and Facebook memes in the world, but none of them will have any impact on the provincial oil and gas industry’s real foes.

Now, more than ever, it’s time for Alberta to stop picking fights and start coming to terms with the new reality it faces. Oil and gas will continue to fuel the global economy for decades to come, but the competitive pressure between countries who want to supply it will only continue to increase.

Rather than continuing to place all its bets on that industry’s future, it’s time for Alberta to start spreading them out – before it’s too late.