Varcoe: A deafening silence from Trudeau on solving Canada's oil-price crisis
November 22, 2018
If Prime Minister Justin Trudeau thought he was going to curry favour by visiting the heart of the oil industry Thursday, touting tax changes to make Canadian industry more competitive, he was deeply mistaken.
The oilpatch is demanding specific answers from Ottawa.
Energy officials want to know how Trudeau, along with the provincial government, will fix the massive discount pounding Canadian oil prices because of a lack of pipeline capacity in the country.
The Notley government is also disappointed.
It hasn’t been told if Trudeau’s government will help bankroll the purchase of new locomotives to increase oil-by-rail shipments out of Alberta.
And a group of 2,000 protesters marching outside a downtown hotel where the prime minister was speaking Thursday afternoon had their own message for him about the Trans Mountain project.
“Build that pipe,” the crowd roared.
Everywhere he turned, it seemed the country’s prime minister was getting an earful from an increasingly angry, anxious and frustrated province.
And for good reason.
Alberta is watching millions of dollars of non-renewable oil wealth evaporate daily because of the country’s inability to build new pipelines.
Better depreciation rates for companies making capital investments — one of the key components in the Liberal government’s fall economic update this week — are welcomed by Alberta’s business sector.
But it isn’t enough.
“We are looking for more than that,” Mark Scholz, president of the Canadian Association of Oilwell Drilling Contractors (CAODC), said Thursday morning after delivering a speech to his association that excoriated the government for fumbling the ball on getting pipelines built.
“That’s not going to save us.”
Such skepticism didn’t stop the prime minister from promoting his accelerated capital cost allowances while visiting the city.
Trudeau gave a luncheon speech to the Calgary Chamber of Commerce where he acknowledged the difficulties facing the province and economic distress caused by Canadian oil selling at a steep discount to global prices.
The price of Western Canadian Select heavy oil sold for just US$16.42 a barrel on Wednesday, while West Texas Intermediate crude fetched $54.62 a barrel.
Trudeau called the situation a crisis, noted it is costing Canada an estimated $80 million a day.
The prime minister pointed out he met with energy leaders in Fort McMurray earlier this year, and they requested Ottawa expand market access for Canadian oil and improve the capital cost allowance rules so major investments can be deducted quickly.
Ottawa bought a pipeline — the Trans Mountain oil line to the West Coast — and has now announced the tax changes.
However, a court ruling has since put Trans Mountain’s expansion on hold and it’s uncertain when the $7.4-billion project will be built.
Changing the depreciation rules for businesses won’t make much difference if petroleum producers slash their capital programs next year because of the oil-price carnage.
“The accelerating capital cost allowance doesn’t matter if the differentials are where they are — because no one is going to spend any money,” said Steve Laut, executive vice-chair of Canadian Natural Resources, the country’s largest oil and gas producer.
“There’s going to be no jobs.”
Trudeau pointed out a number of U.S. oil refiners shut down for maintenance this fall. The discount should ease somewhat as they come back online and need more Canadian heavy crude.
Yet, there is a persistent glut of oil in Alberta and not enough take-away capacity.
“I know that even industry isn’t entirely united on the best ways to move forward on how to fix this differential,” Trudeau said, referring to a battle between producers who want the Notley government to curtail oil output, and refiners who believe market forces should resolve the issue.
Pressed by chamber CEO Sandip Lalli for a federal response to the short-term differential woes, Trudeau had little to offer.
“It’s like you think there’s a super simple answer, there’s not. This a multi-faceted complex issue,” he replied.
Look, everyone gets it, these are complicated issues.
There is no silver bullet, no simple answer, no quick fix — choose your cliche — to the pricing predicament for Canadian crude.
But here’s another reality.
The Liberal government chose to kill the Northern Gateway project, not Alberta or the oilpatch.
It was the federal government that messed up consultations with Indigenous communities over the Trans Mountain pipeline expansion.
His government needs to come up with remedies, not just drop by to share Alberta’s pain, or wait for others to come up with a master plan to make it all better. It’s called providing leadership.
There was not one single specific solution offered by the prime minister to the differential, just a promise to meet with the industry while waiting for legal and regulatory issues around Trans Mountain to be addressed.
To his credit, Trudeau did sit down with a handful of energy executives after the speech to hear their concerns and suggestions.
One idea from Alberta is for the federal government to team up with the province and buy locomotives that could get two large-unit trains moving more oil out of Alberta each day.
It would likely take months for the engines to arrive, but it would improve transportation capacity next year.
In a speech to the CAODC, Premier Rachel Notley said the province will keep pushing its rail plan and “if Ottawa won’t come to the table, then we’ll get it done ourselves.”
Asked about the matter, Trudeau never came close to touching the question of Ottawa chipping in to acquire locomotives.
“There was a lot of generalities, a lot of, ‘I’m looking into it and listening.’ But there wasn’t really anything concrete,” said Chris Bloomer, chief executive of the Canadian Energy Pipeline Association.
“We didn’t really hear any solutions today,” added Tim McMillan, president of the Canadian Association of Petroleum Producers.
Scholz didn’t stop by to hear the prime minister. He didn’t miss a beat when asked what message Trudeau should take away from his visit to Calgary.
“This industry is in crisis and we are not looking for Band-Aid solutions at this point,” he said.
“The lack of action on this file has been deafening.”
After Thursday’s performance, it only grew louder.