Why I support oil production constraints

This past Thursday, I was at an energy industry conference hosted by Sproule -- one of my company's partners on a file with clients involved with the Alberta Energy Regulator.

The conference was punctuated with random polls of the audience.  Interestingly, one of the questions was whether the Alberta Government should impose production cuts on industry.  The audience was almost exactly split on the issue -- about half for intervention, and half opposed.

In my discussions with contributors after the event, I found the rationale of people opposing government intervention rests upon the experience of governments of various stripes and levels, and how they have mishandled so many issues affecting the oil and gas industry.  In short, the industry does not trust government -- particularly political decision-makers to make good decisions -- for the industry, or for the long term benefit of Albertans and Canadians.

In small groups, I was able to win over several converts to the necessity of imposing cuts.  There is a role for the resource owner here -- in protecting the patrimony of the people of Alberta.  Short-term job cuts are going to happen, sadly, no matter what, The government (in this case, Alberta) needs to step in and fix a market mechanism that lost balance because of the inaction (and worse) of a misguided federal government -- that has created an artificial pricing point between demand and supply, thus transferring the economic benefit of our resources to companies beyond Canadian borders.  The result is a wealth transfer outside of Canada; the only governments benefiting from this imbalance are in the United States -- where companies are getting access to our resource at a price far below market, and refining it into end uses that receive world prices.  And they pay taxes in their local jurisdictions.

Our world class oil and gas production companies have performed well, under strained circumstances.  They have increased production -- as markets instruct them.  Pipeline companies have striven to stickhandle through the ever more complex regulatory regime -- in order to deliver the increased production to market, when the production arrives.  When the federal government cancels this takeaway capacity, it undoes years of work by regulators and infrastructure companies -- and it also leaves a gap between the incoming supply that has no way to meet the demand.

I'm being generous in suggesting that this outcome is a result of gross negligence on behalf of the Trudeau government.

One level of government has broken a market mechanism; the government most affected (Alberta) needs to step in to fix it.

I'm very pleased that all of Alberta's political leaders have addressed this matter cohesively, and in a non-partisan manner, for the benefit of all Albertans.

Greg McLeanComment