By Vanessa Corkal, policy analyst, and Aaron Cosbey, senior associate, at the International Institute for Sustainable Development.

In times of unprecedented crisis, government leadership means being bold. But as Canada and its provinces prepare to roll out record-breaking emergency responses to help the newly jobless and throw lifelines to drowning sectors, it’s becoming clear that not all support is created equal.

Alberta Premier Jason Kenney has said unemployment could rise to at least 25 per cent, or upwards of 500,000 workers. To bolster Alberta’s economy, he called for the federal government to commit at least $20 to $30 billion in liquidity for oil and gas producers. This came on the heels of the province’s announcement of almost $8 billion in equity infusion and loan guarantees for the Keystone XL oil pipeline. There have also been calls for the federal government to purchase oil and gas sector accounts receivable at a discount.

There’s no question that people across Alberta need urgent help. In the accommodation and food service sector alone, nearly 100,000 workers have already lost their jobs, and similar numbers seem likely in retail trade. The oil and gas sectors have seen thousands of layoffs and postponed labour as the province’s companies limit production and shelve all plans for expansion, upgrades and maintenance.

But is injecting tens of billions into oil and gas corporations the right kind of help? As well as addressing immediate needs, strategic emergency response should have two critical features:

1. It should address the root causes of the crisis and reduce vulnerability to future crises;
2. It should take advantage of the dynamism that crisis creates to build back better and achieve important public policy goals that may have been harder to reach in more settled times.

Would the proposed assistance address the root causes of the crisis? Alberta’s economic hardship started before COVID-19 and is grounded in over-dependence on those inherently cyclical commodities. But rather than pursue diversification that could shelter Albertans from the pain of future shocks, these sorts of investments double down on the status quo, hitching the wagon firmly to volatility and uncertainty.

There will be future shocks, whether it’s another 2008-style financial crisis, a climate-induced crisis such as the 2016 Fort Mac fires, or — dare we say it — another COVID-19-style pandemic. Placing heavy bets on the oil and gas sector nearly guarantees we will be here again, with similar social and economic pain for people across the province.

Bets like these assume the oil and gas sectors will return to business as usual after COVID-19, that demand will be strong for decades in spite of increasing climate change mitigation efforts, that pipelines will be built despite sustained opposition or political delays, and that Saudi Arabia and Russia will back down and reverse measures designed to do exactly what they are doing — squeeze out high-cost producers like the U.S. and  Canada.

Even if all those assumptions prove right, and the bet pays off, that success doesn’t address the underlying problem of over-dependence — it aggravates it.

Would the proposed assistance take advantage of the opportunity to build Alberta back better? We know that, whether through market forces or government policies, Canada’s oil and gas sector will eventually decline, hopefully to be replaced by more diversified and sustainable economic drivers. As the head of the International Energy Agency, the United Nations Secretary-General and others have recently argued, our response to the current crisis must accelerate this urgently needed transition. If Alberta is to rebuild its damaged house after this unprecedented crisis, why not build a stronger house?

For Alberta and the federal government, this should mean investing tens of billions of dollars in sectors that can bring long-term prosperity for Alberta’s workers and families, such as hydrogen, health sciences, renewable energy, clean transport, sustainable agriculture, innovation in oil and gas well reclamation, and prevention of fugitive methane emissions, building on the province’s world-class institutions and infrastructure, and the strengths of its people.

The coming economic downturn will swallow up the unprecedented torrents of fiscal support we’re assembling, and still call for more. But let’s remember that this spending can be a historic force for positive change to ensure that when we come out the other end, our society is more equitable, sustainable and resilient — ready for whatever the future might throw at us.

10 things you need to know as a barrel of Alberta oil is valued at less than a bottle of maple syrup

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The headlines don’t stop. “Oil crashes to fresh 18-year low.” “Crude-oil prices post the largest quarterly percentage drop on record.” “Canada is first price-war casualty.”

As the COVID-19 pandemic leaves its mark on lives and economies across the globe, Alberta’s already-volatile oil industry is gearing up for another storm as oil prices around the world plummet.

Recently, some types of oil have even traded at negative oil prices.

Negative. Oil. Prices.

It’s what Alberta Premier Jason Kenney called a “triple whammy — the pandemic, the recession and the oil price crash.”

At the same time, Kenney has announced a $1.5-billion investment in a multinational pipeline company to build the controversial Keystone XL pipeline to the U.S. Gulf Coast, and the federal government is reportedly floating plans for a $15-billion bailout of the industry.

Oil and gas producers have asked governments to consider investing public funds into their private companies — not unlike what was done to try to shore up auto companies in the last major recession.

With so much news flying around, we wanted to take a couple steps back and clear up a few basic questions. 

Why are oil prices so low? How can an oil price be negative? And what the heck is “homeless crude?”

Read on.

1. So is this the lowest oil prices have ever been?

When we talk about Alberta’s crude oil — specifically, bitumen from the oilsands — we look at a benchmark price called Western Canadian Select (WCS). And while Western Canadian Select has been low before, it’s never been quite this low. 

Western Canadian Select dipped down to US$3.82 per barrel on Monday. There are 159 litres in a barrel of oil, so that’s just over two cents per litre. 

In the past, Western Canadian Select had been as low as US$5.97 per barrel. That was back in December 2018, according to data from the Government of Alberta.

Western Canadian Select prices. Source: Alberta government. Graph: Carol Linnitt / The Narwhal

2. Is the price of oil so low because of the pandemic? 

The pandemic certainly hasn’t helped oil prices, as demand is plummeting (think fewer flights, less driving, less economic activity in general). 

But the real price crunch is the result of a long-simmering price war. 

The basics tenets of supply and demand make it obvious that prices go up when supply is low. So for years, major oil-producing countries like Saudi Arabia, a member of the Organization of the Petroleum Exporting Countries (OPEC), and Russia, not a member, have been trying to agree to reduce supply (i.e. sell less) to keep prices high.

But in March, that all changed. Saudi Arabia essentially said “to hell with this” and started increasing supply again. Prices plummeted as expected (thanks, econ 101!).

3. But why would Saudi Arabia flood the market with cheap oil? Isn’t it ultimately losing, too?

While Saudi Arabia and Russia have been trying to curtail supply to keep prices higher, the trouble is, not everyone has been on board with that strategy (ahem, the United States).

Crude oil production in the U.S. has doubled in less than 10 years, according to data from the U.S. Energy Information Administration. This meant Saudi Arabia and Russia were trying to curb their production while the U.S. was still “going gangbusters” with production, according to Clark Williams-Derry, a Seattle-based energy finance analyst with the Institute for Energy Economics and Financial Analysis.

That meant the supply was staying high — and the prices were staying low.

As Jeff Rubin, former chief economist of CIBC World Markets, put it, “Saudi Arabia did what is the rational course of action for the lowest-cost producers.”

“[It said,] ‘If we’re going to a price war and I’m the lowest-cost producer, I’m turning open the spigot.’ ”

So that’s what it did. 

It flooded the market, because even at a low oil price, the low cost of its production means it can still make money. According to Rubin, the cost of production in Saudi Arabia is easily a tenth of what it is in Alberta’s oilsands.

So while Saudi Arabia is losing out compared to what it would have made had prices stayed high, it is still making money.

Alberta, on the other hand, is in a different boat. Oil from the oilsands costs more to produce and sells at a lower cost than much of its competition.

4. Why is Alberta’s oil worth so much less?

“We talk about oil as if it’s one thing. But it’s actually a range of things, a mixture of hydrocarbons,” Williams-Derry explained to The Narwhal last month. “Each barrel of oil is its own thing.”

Alberta’s crude is different from oil produced elsewhere. 

Alberta has two main disadvantages: location (we’re landlocked) and the quality of oil produced (thick like cold molasses).

“You’re talking apples and oranges,” Rubin explains. “One is a much lower quality oil.” That’d be Alberta’s.

That creates what’s known as the price differential — the discount Alberta crude is sold at compared to the common North American benchmark, West Texas Intermediate (WTI).

So while West Texas Intermediate trades at around US$20 per barrel, Western Canadian Select can dip much lower — even to under US$4 per barrel.

Work is expected to slow down in the Alberta oilsands, due to a plunge in world oil prices. Photo: Alex MacLean

5. Under US$4 per barrel of oil is less than a bottle of maple syrup. How low can oil prices go?

Very low. 

Oil prices depend on a lot of things — and it’s important to remember that benchmarks like Western Canadian Select are just that: benchmarks. But with so much oil flooding the market right now, prices are being driven down dramatically, to the point that a barrel of oil can be “functionally worthless” once production and transportation costs are factored into the equation.

And in some areas, that could even mean the oil price could be negative.

6. What on earth is a negative oil price?

Last week, Bloomberg reported that some “producers are actually paying consumers to take away the black stuff.”

That was after another benchmark oil price, Wyoming Asphalt Sour, a type of oil blend used to make paving bitumen, was reportedly trading at -19 cents U.S. per barrel.

As CBC pointed out, Wyoming is not unlike Alberta — in that it is landlocked — leaving some to wonder if Western Canadian Select is also going to be pushed close to a valuation of zero … or less.

These fears aren’t just held by oil price analysts — Alberta Premier Jason Kenney has reportedly speculated that the price of Western Canadian Select could drop into the negatives in a matter of weeks.

7. Why are we still paying 60 cents per litre for gas in Alberta if oil is worth basically nothing these days?

Gasoline prices in Alberta have fallen to roughly half of what they were at this time a year ago, with some gas stations in the province reporting prices in the 55-cent range, according to Gasbuddy.com.

But don’t expect gas prices to be negative anytime soon.

The stuff we put in our cars is very different from the thick molasses pulled out of the ground at an oilsands mine. Refinery and transportation costs play a big role in gas prices, as do taxes. And don’t forget the gas station itself wants to make a few bucks, too. 

It’s a bit like buying a loaf of sourdough from the bakery. Yes, we have wheat growing next door, but that doesn’t do most of us a lot of good when we want to make a sandwich.

We can, however, likely expect to see gas prices stay low as the price of crude oil stays down.

8. Can’t companies just store oil until prices go back up?

You’d think companies could just hold on to their oil if the prices they’re fetching aren’t worth it.

But too much oversupply around the world can mean storage options simply run out. 

There are serious concerns right now this might already be happening. As CNN put it, we’re in the midst of “a supply glut so epic that the world will soon run out of room to store all the unneeded barrels of oil.”

And according to reports from The Financial Post, “by June there’ll be no place left to put the unwanted crude.” 

This has led to a new kind of crude: “homeless crude” — oil that has no place to go. 

No one wants to sell it at such low prices, but increasingly they can’t find anywhere to store it, either.

That means companies are thinking of creative ways to store their excess supply, including buying tankers to use as floating storage. One energy analyst has suggested 20 per cent of the global fleet of what are known as “very large crude carriers” could be used as floating storage — but even that wouldn’t offer enough space to store all the unwanted oil. 

And in the meantime, the cost to store oil on a supertanker has skyrocketed.

But with so much excess supply and so little (affordable) storage, the only option for many producers is to sell their oil. That means even lower prices. 

Eventually, producers are forced to stop producing.

9. So can’t Alberta just turn off the taps for a while?

Not really — especially not in the oilsands, where huge mining operations can’t simply be turned off with ease. 

“It’s not nimble,” Rubin said of the oilsands industry, noting that the huge staff and capital investment make it more difficult and expensive to halt production at an oilsands mine than at more conventional wells or U.S. shale production, which can be temporarily suspended at a lower cost.

In other types of oilsands production that involve steam, there are added concerns that turning off production can hinder the ability of a well to produce oil in the future.

Then there are the economic worries.

“Alberta can’t just afford to shut it all down,” Rubin told The Narwhal. “There are consequences for people, not just who work in the oil industry, but who require the spending of people who work in the industry. So let’s try to salvage what we can.”

This is what has governments nervous — figuring out a way to prevent a total economic collapse, while taking into account the long-term challenges the industry already faces, including serious concerns about climate impacts.

10. Will more pipelines solve this problem?

As Rubin put it to The Narwhal last month, he believes completion of the Trans Mountain pipeline expansion project would be a “lifeline,” not a panacea, for the struggling oil and gas industry.

“The notion that Asia is desperately waiting for Canadian bitumen is a fantasy,” he said, adding that he believes while more pipeline capacity would ease some of the pressures on the price for Alberta’s crude, it would by no means make the high-cost product into something high value, especially when compared to what’s available in the rest of the world.

So that leaves the question on the table — what is the future of Alberta’s oilsands industry and the thousands of workers employed within it?

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Alberta Oil Magazine just published its National Survey on Energy Literacy, the culmination of 1,396 online interviews of a representative sample of Canadians conducted by Leger.

The results are particularly interesting coming from Alberta Oil, a magazine destined for the desks of the energy sector’s senior executives and decision-makers.

Summing up the survey’s findings about “The Issues,” Alberta Oil editors write that opposition to energy projects is “not just for West Coast hippies anymore.”

Indeed. There are quite a few nuggets in the survey’s findings that are probably causing a headache or two in Calgary’s corner offices this week. We round up the Top 5.

1) Opposition to the proposed Kinder Morgan Trans Mountain pipeline is just as serious as opposition to Enbridge’s proposed Northern Gateway pipeline — if not more so, according to the survey. What’s more, the more highly educated citizens are, the less likely they are to support Trans Mountain or Northern Gateway. Hmph, maybe the anti-pipeline crowd isn’t all unemployed hippies after all?

2) Fewer than one-in-ten post-secondary graduates find oil and gas industry associations credible and trustworthy when it comes to carbon emissions. That shouldn’t come as a huge surprise given that industry associations like the Canadian Association of Petroleum Producers have fought new greenhouse gas regulations and successfully lobbied to weaken Canada’s environmental laws.

3) Young people aren’t super stoked on the future of the energy industry. Just 16.5 per cent of people 18-34 described it as “essential,” compared to 30.3 per cent overall. What’s more, only 9.3 per cent of respondents aged 18-34 described the oilsands as “essential” compared to 18 per cent for the broader population.

4) While British Columbia has thus far been the focal point of Canada’s pipeline debate, the strongest opposition to the oil and gas sector is actually in Quebec. That’s going to have big ramifications for the proposed Energy East pipeline that would theoretically transport bitumen across that province. When asked to think of the oil and gas sector in Canada and select words that come to mind, 51 per cent of Quebecers came up with “environmental disaster.” Time for Trans Canada's PR people to pop an Advil. (Since Edelman isn't doing their dirty work for them any more …)

Screencap of Alberta Oil Magazine's National Survey on Energy Literacy.

5) The editors at Alberta Oil do some hand-wringing about Canadians' lack of “energy literacy” … although energy literacy in this case appears to be defined as the ability to answer some pretty obscure pro-industry questions.

Take the multiple choice question on how much more carbon intensive the oil produced from Alberta’s oilsands is than the average grade of U.S. crude on a well-to-wheels basis. Only 5.6 per cent of respondents chose correctly.

Ummm hold on, hasn’t there been a raging debate going on for the past few years on oilsands’ emissions intensity?

While Alberta Oil would like you to think the “correct” answer to that question is six per cent, a comparison of oilsands emissions intensities (well-to-wheels) from seven data sources to the 2005 U.S. baseline showed that oilsands emissions range from eight to 37 per cent higher than the baseline. Really, the best answer would probably be that there's a huge amount of variation and disagreement on oilsands emissions intensity.

In good news, very few Canadians can spew out the precise answers industry wants to hear to their technical questions. Oil execs probably aren’t loving that their multi-million dollar advertising campaigns appear to be falling on deaf ears.

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When you cover energy and environment issues day in and day out, you’re prone to having some pretty geeky fantasies.

Case in point: over the holidays, my mind wandered to considering what advancements in Canadian energy policy I’d put on my wish list for 2015. I could have rattled off five or 10 things, but one kept rising to the top.

If I could wave my magic wand and make just one thing happen on the energy and environment front, what would it be? I’d like Alberta to start managing its oil wealth more responsibly.

The context: as 2014 draws to a close, Calgary public-school officials are asking the province to cough up the funding required to complete eight new schools and two modernization projects on time.

Right now, one-third of Calgary’s schools are running at more than 90 per cent capacity. All of the projects that require funding have been announced by Alberta Premier Jim Prentice since he took office in September.

“With the recent fluctuation in oil prices, we’re concerned,” Calgary Board of Education trustee Amber Stewart told Metro Calgary.

Let’s take a pause and reflect on how totally absurd this is for a moment.

Alberta has been developing one of the world’s largest sources of oil for more than 40 years and yet Calgary’s schools are nearly overflowing and the province doesn’t know if it’ll be able to locate the cash to build new ones because — surprise! — the price of oil changed.

So what’s wrong here? For starters, new infrastructure shouldn’t be tied to the price of oil. Even the Fraser Institute and the Canadian Centre for Policy Alternatives can agree that the Alberta government shouldn’t rely on non-renewable resource revenue to fund its operating expenses. (For the best run-down on this topic, read Money for Nothing: The Province vs. Non-Renewable Resource Revenue by Alberta Oil editor Max Fawcett.)

Fawcett references a 2013 Fraser Institute report that said to treat oil revenues as “analogous to sales tax receipts, and to spend them on projects that provide a flow of present services, would be to engage in unwise capital consumption, a drawing down of principal. Intuitively, the present generation would be selfishly eating away at a finite stock pile of wealth, rather than acting as custodians of ­nature’s gifts on behalf of all future generations.”

Another report by former Premier Ed Stelmach’s Council for Economic Strategy noted: “The true Alberta advantage is not the ability to create a low-tax environment by underwriting a significant proportion of government services with funds received from the sale of energy assets.”

Despite generating almost $190 billion in non-renewable resource revenues since 1980, the value of Alberta’s Heritage Fund was just $17.3 billion at the end of 2013 — paling in comparison to both Norway and Alaska’s non-renewable resource savings.

So here we are digging up two millions barrels of oilsands per day, and Prentice is warning that tough times could lie ahead as oil prices plunge below $75 U.S. per barrel. The province has projected that there could be a $7 billion shortfall in revenues next year as a result of the price crash.

Could these fiscal woes offer the window of opportunity needed for Albertans to wake up and see how poorly their oil wealth is being managed?

It took millions of years for all of that oil to end up trapped in sand in northern Alberta. We only get one shot at digging it up. It’s high time we start getting that right (and getting that right would inevitably mean going slower and collecting higher royalties).

The first step in changing the way Alberta manages (or mismanages) the oilsands is to untether government spending from oil revenues, thus starting to dismantle the government’s reluctance to fairly regulate industry. Right now you have a situation in which the Alberta government is reluctant to bite the hand that feeds it.

As an added bonus, keeping one-time resource wealth out of the province’s operating budget could weaken the government’s chokehold over its citizens (pretty easy to stay in power when you’re dishing out $400 “prosperity cheques”) — not to mention actually creating a savings fund for the future.

In an interview with The Tyee, Terry Lynn Karl, one of North America's foremost experts on the politics of oil, offered some wise words on the impact of oil revenue on governments. 

"Let me be clear: the commodity itself is neither good nor bad,” she said. “But the excessive profit involved from what Adam Smith called 'reaping what has not been sown' has led to a concentration of power and influence that makes it exceptionally difficult to fight the negative consequences of hydrocarbon dependence.”

The first step to breaking up that concentration of power and influence? Stop borrowing from the future and spending oil revenue like it's going out of style.

So here’s a little new year’s resolution suggestion for Prentice and the Alberta government: show your commitment to managing the oilsands responsibly by weaning yourselves off relying on one-time oil revenues to provide government services. If you showed that kind of courage, there may be short-term pain, but Albertans 50 years from now would still be clinking their glasses in your honour.

Photo: Jim Prentice by Connect 2 Canada

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Kitimat residents have voted against the Northern Gateway pipeline, with 58.4 per cent of ballots in the city’s plebiscite being cast against the project, as of around 9 p.m. Saturday. In total, 1,793 voted against the proposed project, while 1,278 or 41.6 per cent were in favour.

3,071 ballots were cast, marking a high turnout (62 per cent) in the community of roughly 4,900 eligible voters at the terminus of Enbridge’s proposed oil pipeline. Fifty-six per cent of eligible voters cast ballots in the last municipal election.

“We’re celebrating with the Haisla outside in the park…and they’re surrounding the Douglas Channel Watch with thank you signs. They’re performing a drum song right now,” said Patricia Lange from Douglas Channel Watch.

“It’s a really powerful moment.”

The vote, although non-binding, is an important part of the public relations battle being waged over Enbridge’s project. Enbridge brought in teams of paid corporate canvassers from out of town, placed full-page ads in northern newspapers and launched a “Vote Yes For Kitimat” website.

“This vote is confirmation we are going to stand firm and say no to the influence of big oil,” Lange said.

“And coming from our community, a community that has everything to gain from this project, we still say no. We are sending that message throughout B.C. and to Ottawa.”

Donny van Dyk, Northern Gateway's manager of coastal aboriginal and community relations, said in a statement: "Today’s result shows that while there is support for Northern Gateway in Kitimat, we have more work to do. And over the coming weeks and months we will continue to reach out and listen to our neighbours and friends so that Northern Gateway can build a lasting legacy for the people of our community."

The cities of Smithers, Prince Rupert and Terrace already officially oppose the project, as do the Kitimat-Stikine Regional District and dozens of First Nations. The province of British Columbia also said no to the project in its final argument to the joint review panel. However, that panel overrode the province and recommended the project be approved. Now the federal cabinet has until June 19 to announce whether it will grant the project certificate.

Before the plebiscite began, Douglas Channel Watch had $200 in the bank (Enbridge earnings for 2013 were $446 million). When the group committed to its first full-page newspaper ad, members decided they would pay for the remainder themselves if donations wouldn’t cover it — then the money started rolling in.

“People began handing money to us while we were putting up lawn signs, or downtown, and somebody even left an anonymous $2,000 money order in one of our mailboxes,” said Murray Minchin, a member of the group.

Kitimat is located at the beginning of the Douglas Channel, where 225 tankers would be loaded with oil and set sail for Asia each year if Enbridge’s project goes ahead. The city is arguably the B.C. community that would benefit most from the project — with Enbridge promising up to 165 permanent jobs in the city.  

Indeed, if Enbridge can’t earn support in Kitimat — a blue-collar city planned and built by the Alumnium Company of Canada in the 1950s — then it’s hard to see how the company, or the federal government for that matter, can even pretend to have social licence for this project in British Columbia.

*Update notice: The voter turnout percentage in this story was updated (from 71 per cent to 62 per cent) to reflect a jump in new voter registrations. Before the vote, there were 4,163 people on the voters list. A total of 761 new voter registrations occurred during the plebiscite, altering the turnout calculation.

Image Credit: screen shot from yesforkitimat.ca

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