I’ve held my tongue for a week now, so I’m just going to say it: Canada as a whole, and Alberta, Saskatchewan and Newfoundland in particular, would be in a much better place now, to deal with the COVID-19 crisis, if the federal government had not done everything it could since 2015 to stymie the oil and gas sector, killing around $200 billion in projects and investments.
We just had an emergency session of Parliament with about 10 per cent of the MPs in their seats, to pass emergency spending measures beyond anything we’ve done before. The federal government is saying people will still be able to make their rent and mortgage payments, and that all those who lose their jobs due to the COVID-19 outbreak will get $2,000 per month. Yet on March 25, Prime Minister Justin Trudeau announced nearly a million people had already applied for Employment Insurance benefits.
Prior to this crisis, the largest economic crisis we have seen, ever, the federal government was running budget deficits to the tune of $28 billion per year. Oil producing provinces were also facing very tough deficits, although Saskatchewan had, to just recently, and oh-so-briefly, clawed itself out of that hole.
Now governments will help everyone, in every sector, as nearly the entire economy is shut down to “flatten the curve” and slow the spread of the deadly coronavirus. And don’t get me wrong, I appreciate that. I am quite literally three-times over one of the vulnerable ones.
But this is where the anti-oil, anti-energy policies have come home to roost.
The price of oil has crashed tremendously around the planet. It will stay low not just because the Saudis, UAE and Russians are flooding the market, but because the demand side has totally collapsed. If airliners aren’t flying, commuters aren’t commuting, consumers aren’t consuming, and most of the economic activity grinds to a complete halt because everyone has to stay home, we will see the largest drop in oil consumption, likely ever, over the short term.
This is being reflected in world oil prices. Today, March 26, West Texas Intermediate is trading for $23.29 (all prices in USD). Brent is $29.10. But, what is truly horrible, is Western Canadian Select was $9.09 (BNNBloomberg reported later in the day it was $6.45 per barrel.).
Not only is the bulk of Canadian oil production worth less, it is essentially worthless.
It is worth substantially less than Brent or WTI or Brent. If we had the Energy East and Northern Gateway pipelines in place, as they were both supposed to have been operating by December 2018, we would at least be getting something closer to Brent price. That would mean even in these times of horrible oil prices, we would be at least be getting something. But we’re not, because those pipelines were never built.
When you factor in transportation costs, a $6.45 barrel really gets you close to nothing, as in worthless. You’re basically giving it away, and that oil you give away is never coming back. There’s almost no point in producing it, or putting it in a pipe. This is exactly the conclusion Suncor, Canada’s largest oil producer, came to when it decided on March 25 to shut in one of its two process trains on the 194,000 barrels per day Fort Hills oilsands mine, as Bloomberg reported.
You can expect to see very large swaths of oil production tied to WCS shutting in in short order. There’s simply no way to keep operating at those prices for many projects. This will undoubtably hit the heavy oil sector in northwest Saskatchewan very hard, and our oil revenues just as hard. Heavy oil is half our production.
So what could the federal government do, right now, to try to right this capsizing ship?
It could ask TransCanada, sorry, TC Energy, to dig up its copious plans for Energy East, and tell them, order them, to start today. Have dirt moving in eight weeks. And if necessary, the feds should back it financially.
A much more difficult, but possible approach, would be to get the Canadian Prosperity Pipeline people to do it, but they would be starting from a much further place back, basically from scratch. TC Energy had all the plans in place, ready to go, already.
I don’t know how one goes about socially distancing oneself on a pipeline crew, thinking back to my several years working on such crews. A lot of processes already are. But the welding crews might be a bit tougher. And bussing could be problematic. But right-of-way work could start right away.
Doing so would put a lot of people back to work, not just in construction, but steel manufacturing. It might require a federal mandate of lower wages than the typical union rate. But at least it would be work, like the many relief projects of the Dirty Thirties. Better to build infrastructure than do nothing.
The other reason to do this is to say, once and for all, we will not accept another drop of OPEC oil on Canadian shores. Period. They are the ones who chose this time of crisis to attack us with economic warfare – and it truly is an attack.
If oil demand is dropping so far, so fast, surely there is enough light oil produced in Alberta, Saskatchewan and Newfoundland to fill the refineries of Central and Eastern Canada. Put it on rail from the prairies, and tanker from Newfoundland. But for the love of all that is holy and Canadian, please use Canadian oil, today, and forevermore. Do this, right now, until Energy East is built.
If we are going to have millions unemployed, and we are paying for them anyhow, surely we can ramp up construction of this pipeline and get it built and operational in a year, not two or three. The plans are in place. Move quickly.
Alberta needs this, desperately. So does Saskatchewan, and Newfoundland. Canada, as a whole, needs this.
Start today. Put people to work. And let’s say to hell with OPEC, forever.
Brian Zinchuk is editor of Pipeline News. He can be reached at email@example.com.
UPDATE: Trudeau not focusing on Saudi Arabia and OPEC's price war during COVID-19, from March 28 news conference.