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It’s hard to tell whether Alberta’s oil curtailments are working, said chief economist

Alberta’s decision to curtail oil production has increased the price of oil in the market, but Conference Board of Canada chief economist, Pedro Antunes, says it’s hard to tell whether the policy is working or not.

The Conference Board does economic forecasts for Canada, individual provinces and by sector.

Antunes says the question is about the net – while production cuts impacts prices, it also impacts volumes.

“Our sense has been that right now it does seem as though it has had an impact on pricing, which is very positive in a way, but our sense is…this is something historically that we’ve not seen before,” said Antunes.

“We do have a lot of producers that were already reacting to the low prices in the market, so there wasn’t necessarily market failure, perhaps the markets were a little slow to adjust, I don’t know, but in the end it’s hard to know whether this policy is good or not is essentially our point,” he said.

Pedro Antunes, chief economist, Conference Board of Canada

Antunes said oil production contributes directly to 25 per cent of Alberta’s GDP, real income generated in the province.

By curtailing production, it changes the playing field and affects oil companies differently. Plus, the method used to reduce production will impact the larger producers, similar to the situation locally with CNRL and the near shut-in of the ECHO pipeline.

“What we’re seeing is that it’s easier to control the big producers, some of the smaller producers of less than 10,000 bbl/day, they are unaffected by this. Those folks are winners because prices go up and you’re unimpeded in terms of your production,” said Antunes.

Currently, the province uses the highest month of production between Nov. 1, 2017, and Oct. 31, 2018, as the formula. The province allowed an uptick of 75,000 bbl/day increase for the months of February and March.

“I think we’re seeing examples of when you impose these kinds of policy changes, even if they are well-intended, and if we have seen a positive reaction in terms of prices, you are affecting the producers in very different ways and perhaps causing more pain than with others. It is difficult to try and control market production.”

The issue Antunes highlights further is the investment piece which generates a lot of economic activity. He says that’s what generated the economic boom in Alberta from 2010-2014 and could be hurt with government impacts.

“The problem is that business will not like or may avoid investing in a climate where they don’t feel they have full control going forward. So I think it may hurt long-term investment intentions in the oil patch in Alberta,” said Antunes.

The Trans Mountain Pipeline plays a critical role in easing price pressures on oil, as it means Canadians will get a better price for almost all production, said Antunes.

“Whether or not people are for or against development of energy production, we have as a nation carte blanche. We had a playing field that was open for investment. We said yes, this is a huge and massive resource in terms of the oilsands, it’s going to generate a lot of wealth for this country, so let’s promote the investment. Then at the tail-end of it, once the investments are all in we’re constraining essentially our ability to get that production, which is getting to market anyways, but we’re restraining our ability to get the best price for it, and this is where we feel it’s a mistake,” said Antunes.

Don’t expect a similar resurgence back to 2010-2014 oil prices, said Antunes, as the long-term investment piece is what he worries in the future.

“This is with the combination of lower oil prices and lesser interest from private sector and investing, I think we’re going to see more muted growth going forward, but certainly, we should expect to see things balance out by the end of the year,” Antunes forecasts.

“We’ve been very fortunate to have Alberta lead a lot of the economic contribution over 2011-2014. That’s gone away. We haven’t really seen other areas of investment with the economy pick up the slack since. This is an important piece for us to consider, just not with respect to the oil sector – but at large.”