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|Alberta’s Problem with Shut-in Oil

Alberta’s Problem with Shut-in Oil

The only major market for Alberta’s crude oil  is currently the United States. The unfortunate reality is that without additional pipeline capacity, Alberta’s problem with shut-in oil will continue and possibly worsen. In previous blogs in this series, I looked at why oil prices collapsed in 2014-2016 and the oil industry’s responses and some short-term impacts for building trades members. Today, I look at the obstacles to ending Alberta’s shut-in oil problem.

Alberta Oil Industry Obstacles

Right now, Alberta’s oil industry faces several major obstacles that are contributing to our shut-in oil problem. The same obstacles block new investment and new work opportunities for building trades members in the industry. Here is where we are at.

Lack of pipeline capacity

Let’s start with the most obvious issue. Alberta lacks pipeline capacity to reach markets other than the US and thus reduce its problem of shut-in crude.

Northern Gateway appears to be a dead issue. The construction of Trans Mountain Pipeline Expansion (TMX) was expected to partially solve the problem of shut-in oil. We all know about the prolonged delays TMX has encountered. Most recently, approval was delayed due to the National Energy Board’s decision to require additional consultations with Indigenous peoples and greater protections for tanker traffic. The federal government is currently trying to make sure the necessary conditions are met for approval. The latest deadline for a federal cabinet decision on TMX is June 18, 2018. and other pipeline projects.

I agreed with the prime minister that they need to make sure that they cross every ‘t’ and dot every ‘i’ when it comes to discharging the federal government’s duty to consult.
We certainly don’t want them to have to go back to the drawing board a third time on this. And we will continue on our part to build an alliance across the country that supports TMX and other pipelines.
We will continue to communicate the urgency of this to all Canadians.

Premier Jason Kenney

Unresolved issues following the Alberta election

Rail cars Alberta’s agreement to lease rail cars is still in place. Shipment by rail car is currently supplementing shipment by pipeline. The Kenney government plans to change or cancel the program but a decision is pending.

Regulated production There is always a price differential between Western Canadian Select (WCS) and West Texas Intermediate (WTI). The difference is due to the lower grade of Alberta crude and higher transportation costs. The difference is typically about $10-15 per barrel, but due to Alberta’s glut of shut-in oil it ballooned to more than $50 per barrel in late 2018. The Notley provincial government began to regulate production in January 2019, and the massive differential rapidly diminished. The fate of regulated production under the Kenney government is not known at this time.

Carbon tax Alberta’s carbon tax will be removed by the Kenney government. That will trigger the imposition of the federal carbon tax and almost certainly court challenges by the Kenney government. TMX may also be further delayed if Alberta fights the federal carbon tax.

Federal government’s Bill C48 and Bill C48

Bill C48 and Bill C69 can do tremendous harm to Alberta’s oil industry.

Bill C48 could block exports of Alberta crude oil and oil products from the coast of British Columbia through the waters north of Vancouver Island. (Update, 16 May 2019: The Senate defeated Bill C48 in a tie vote. The Bill goes back to the Trudeau government so it is not permanently defeated.)

Bill C69 will change how the federal government reviews and approves major infrastructure projects, like interprovincial pipelines. The oil industry and the Alberta government see Bill C69 as likely to make much worse the very things it was to prevent: uncertainties, delays, and court challenges. The Senate is currently considering massive changes to the Bill.

US regulatory and political uncertainties

Regulatory and political uncertainties are delaying pipeline construction in the US as in Canada. Think of Enbridge’s Line 3 and the Keystone pipeline. Enbridge’s Line 3 (which will restore carrying capacity on a line from Alberta to Wisconsin from the current 370,000 barrels per day to the original 760,000 barrels) is awaiting final permit approval in the US and construction is delayed until at least the 2020 summer season. Approval delays also mean Keystone XL (which will pipe 830,000-barrels-per-day from Alberta to Nebraska) is stalled. President Trump has signalled that he wants to change approval for international pipelines to eliminate lengthy State Department reviews and give himself the power to approve through executive order but that will be challenged in court.

Uncertain demand for oil beyond 2040

Demand for oil is projected to increase until 2040 but then decrease. As a result, oil companies want a faster return on their investments. The predicted decline in demand for oil is based on

  • growing scientific evidence pointing to climate change and the urgent need to reduce carbon emissions
  • falling costs of renewable energy alternatives
  • countries and investment communities moving away from oil in response to these changes.

Investments in Alberta’s oil sands are large and typically have longer timelines to profitability. New pipelines are built to last for many decades. Doubts about long-term oil demand may discourage new investment, but they can also create urgency to get products to market while demand lasts.

Alberta Oil Sands


There is no denying the obstacles in the way of new investment in Alberta’s crude oil industry, new jobs for building trades members in the industry, and at least a partial resolution to Alberta’s shut-in oil problem. But there are also reasons for optimism. My next blog will look at some of those reasons. In subsequent blogs, I will focus on what the BTA, our affiliate Locals, and our members are currently doing and can do in the future to create job opportunities for building trades members.

About the Author:

Terry Parker
Prior to serving as the Executive Director of the BTA, Terry was the Executive Director of the Saskatchewan Building Trades Council for twelve years. Terry worked as a glazier and before becoming the ED for SBTC, he worked as a Business Agent for the International Union of Painters and Allied Trades. His extensive time in leadership roles has given him a wealth of experience in the unionized construction and maintenance industries.

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