Alberta’s Oil Supply Management is Adding to Our Trudeau Problem

 

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It’s time for Alberta’s government to get out of the business of dictating how much oil companies are allowed to produce.

In January, the NDP and Tories came together across party lines to impose ‘curtailment’ – more appropriately ‘supply management’ – on oil production.  The objective was to cut the supply of oil production in order to ease the backlog of supply caused by Alberta’s woefully inadequate pipeline capacity.

This move certainly helped support a good many producers who had planned on Alberta having reasonable pipeline capacity by now, but was punishing to producers who had vertically integrated with their own export capacities, and those who had bet that Notley’s carbon tax-for-social licence gambit would fail.

Government supply management punished those producers who had bet correctly.

With the the NDP, Tories, Alberta Party and Liberals all on board, this policy has survived the ‘Summer of Repeal,’ but the Tories are now making modest moves to wind it down, slowly.

Energy Minister Sonia Savage announced on July 29th that the government would raise the quota on oil production to 3.76 million barrels per day in September, an increase of 25,000 barrels per day over August.  This represents an increase of 200,000 barrels per day over the initial quota.

Any move away from a quota system at all is positive, but this is still a painfully slow pace.  The Tories should stick to their party’s own member-passed policy and scrap the entire quota system, now.

Page eight of the UCP Policy Declaration passed by their members states that they will “facilitate market-oriented development of Alberta’s diverse, abundant, renewable and non-renewable energy resources” and “restore the independence of our energy regulators from political interference.”

These are solid policies, but imposing a quota system on production is anything but “market-oriented,” and cabinet orders to direct the Alberta Energy Regulator is not exactly “restoring the independence of our energy regulators from political interference.”

The objective of clearing out the oil glut was and is a laudable goal, but massive, direct interference in the ability of private businesses to produce however much they like – be it milk, cheese, or oil – is terrible economic policy better suited to Venezuela than Alberta.

Much of the damage has already been done.  Investors looking for a jurisdiction in which to drill have very few jurisdictions from which to pick when looking for a place to put their money where there is little risk of the government swooping in to take control.  Post-National Energy Program, Alberta has been a shining beacon for such investors, but the supply management program – however temporary – will leave lasting damage to this reputation.

The quota system will also discourage producers from making wise investment decisions that go against the grain.  Those who correctly bet that the Notley-Trudeau Pact would fail to get pipelines built in a timely fashion are being punished for being correct.

But the damage is done.  All that can be done now is to scrap the quotas and amend the legislation governing the Alberta Energy Regulator to remove the government’s ability to impose quotas with an easy cabinet order.

While the now federally owned TransMountain pipeline is likely to get built eventually, it alone will still leave Alberta and Saskatchewan woefully short of necessary export capacity, and with bills C-48 and C-69 now the law of the land, little more can be expected in the future.  Add to this Trudeau’s federal carbon tax coming into effect on January 1st, and the picture starts to look pretty bleak.

The ‘Sumer of Repeal’ might be over, but Alberta’s new government needs to add more of the Notley legacy to the chopping block.

Photo Credit: Maclean’s

More from Derek Fildebrandt.     @Dfildebrandt

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