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Friday, March 6, 2015

Nobody Left To Blame

At 444.4 million barrels, U.S. crude oil inventories are at the highest level for this time of year in at least the last 80 years. By mid-April, if the trend continues, the country could be in a state known as “tank tops” which means all available storage for crude inventories will be full. If there’s nowhere left to store the crude… you get the picture? Prices will fall further, some say to 20/bbl, and what would that do to the Alberta economy?

With U.S. oil inventories last week were reported at 444.4 million barrels and refinery inputs reported 85% of capacity, one can argue it is an indicator the oil glut continues to grow, which in turn, will place additional downward pressure on the commodity spot prices. 

In addition to political challenges for pipeline transportation, overcapacity clearly limits ROI projections for commodity suppliers while no Pacific tidewater outlet continues to vex Western Canadian oil and gas producers; it has been vexing Alberta producers for many years.

Approximately 97% of Canadian oil exports are sent to the United States while there is no functional Pacific tidewater outlet for Canadian oil. Meanwhile, over 1.3 million barrels of oil per day in unused capacity on Pacific tidewater goes unused on the Trans-Alaska Pipeline (TAPS), which has over 7 million barrels of storage capacity and a 24 hour turnaround for two VLCC (very large crude carrier (2 – 3.7 million barrels capacity). Even with general purpose and medium range tankers, all the oil in the pipeline can be sent to Asian markets to the tune of 80 million in taxable daily revenue or approximately 29 billion dollars of taxable sales per year… if one calculates based on an average blended price of 50 dollars per barrel. In 2012 when I met with First Nations, Alaska, Yukon, and NWT officials, everybody was willing to work to get a pipeline from Ft. McMurray to connect with TAPS… there was not one political entity in opposition. I repeat… not even one.

I estimate lost taxable revenue, assuming a one year ramp to construction on a bold initiative and another year to test and deploy, we can safely take a blended average price of 75 and point out the Government of Alberta’s failure to act has easily lost gross revenue available for taxation of over 50 billion, depending on prices, that amount will tick up between 30 and 50 billion per year. Assuming a two year decision to revenue ramp, the price of inaction has, as of today, cost over 1.3 trillion (yes… with a T) dollars of lost tax revenue opportunity. It’s important to point out the 1.3 trillion is not lost revenue to the government, it’s lost revenue opportunity (i.e. the amount taxable) and, of course, there has been no mention of the benefit derived from diversification of the economy, the ability to secure a right of way suitable for rail transportation within the same corridor as the pipeline, and the economic benefits of job growth.

Finally, and perhaps more important, the ability to leverage that investment to spur on LNG capacity in British Columbia is enhanced by this strategy because the first nations do not object to natural gas and LNG infrastructure because gas will dissipate to air in the event of a spill, it does not destroy ancient fisheries and sacred lands. The synergies of a growing Pacific tidewater oil port and LNG infrastructure growth in Western Canada is good for all Canadians including our Arctic residents. Once again, I am befuddled and I have to ask… why can’t our provincial governments take yes for an answer? What is so hard about accepting a logical decision everybody can agree with? Why do Canadians have to suffer for this crazy, negative, and counterproductive need to fight or be inactive?

My most fundamental question is… how stupid to you have to be to fail to capitalize on the ability to send approximately 1.6 million barrels of oil per day to Asian markets leveraging a fully developed infrastructure? I might point out… especially when one of your own citizens has handed you a blueprint for this combined with firsthand knowledge of the ability to secure agreements from all parties? Maybe stupid isn’t the work we’re looking for, maybe arrogant is a better word… maybe it’s more accurate.  

On the other hand, perhaps I am the arrogant one for thinking this should be obvious. Perhaps I am the fool for believing that a pre-existing joint economic feasibility plan produced by the Yukon Governmentand the State of Alaska showing a positive net public benefit on a railway... far more expensive than a pipeline. This should be enough to warrant serious discussions.

A new royalty structure complete with legislation that mandates a percentage of revenue to be placed into the Heritage Fund combined with legislation that effectively closes the door to raiding parties of the Heritage Fund. I am deeply offended that our government has repeatedly raided the Heritage Fund to pay for deficits. My message to the current PC’s is simple… look back to the early days. The PC party was right back then… Peter Lougheed did the right thing by setting up the Heritage Fund… be more like Peter.

Let the rocks rain down and let the chips fall where they may, it’s time for a deeper focus on the people’s interest and less focus on corporate interests. Like all of you, I have heard the people suggest that corporations will leave if we don’t give them the free ride they are accustomed to. Their billions were generated precisely because they are here, but if they want to set up shop somewhere else… say, perhaps Havana, Pyonyang, or maybe Riyad, then fine. Corporations that would leave are not the ones upon which a society builds a collaborative future anyway.

I expect more from my government than has been delivered in recent years. In Alberta, PC’s must accept responsibility for everything because after 43 years… there’s nobody left to blame. Perhaps it's time to move on, stop blaming and finger pointing, and get the business of moving energy product to global markets into gear. If you can't get it done... then call me up and I'll deliver your agreements with plenty of time left over to go fishing for halibut in Ninilchik.

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