(January 8, 2013) Some may have noticed ill-concealed panic in Alberta lately. The oil patch is finding tar sands oil is now so cheap that they can hardly afford to dig it out let alone build the pipelines to move it to market, while the Provincial Treasurer is gloomy about oil prices and royalties.
Grain farmers may not have a lot of sympathy. After all former Premier Lougheed’s policy of “acting like an owner” and carefully staging oil sands development was abandoned by the ideologically befuddled Klein administration in favour of a “pedal to the metal” approach and most farmers understand that over production leads to poverty.
Not surprisingly “oil from Alberta has now become some of the cheapest in the world” according to Bloomberg among others and in a quiet announcement at the beginning of the year, the United States Department of Energy changed their pricing point for oil to North Sea Brent, rather than West Texas Intermediate (WTI). On the face of it this is good news for oil producers since North Sea Brent oil is usually traded at a premium to WTI. However the down side is that the higher North Sea Brent price is backed off for transportation costs all the way from Scotland to Alberta instead of from nearby west Texas.
The Alberta government now finds itself without any leverage in the oil pricing game since it thoughtlessly allowed over development and over production to proceed under the less than sober Klein administration. Their friends in Ottawa are desperately gutting environmental regulatory processes and aboriginal property rights (aboriginal sovereignty) to accommodate pipeline construction to get rid of the oil glut.
So what we are seeing is a power play by oil consumers, in this case the United States, to ensure a continued supply of cheap oil from Alberta since pricing basis North Sea Brent builds a high transportation discount into Alberta oil.
All of which sounds like a mirror image of the annual canola swindle pulled on western farmers. About ten years ago the private trade moved the canola price point inland to hide world prices behind a Saskatoon based price favouring buyers rather than producers. Not unlike the oil market today, it involved the manipulation of the pricing point for canola by a secretive private trade at the expense of a farm community which had lost control of its own product.
Like the boom started by the Klein government’s deregulation of oil sands development, with the end of the Canadian Wheat Board farmers are now seeing a similar gold rush in agriculture. Astro-turf farm groups, brokers, and input suppliers are claiming that just like oil, there is unlimited demand for agricultural products. With the limited transportation capacity in the west to export position, that boom may be even more short lived and illusionary than the Alberta oil boom.
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