Alberta and the world of oil

Energy policies are central to global geopolitics. As a result, Alberta — and its new government — is an important player for Canada on the international stage.
By: /
May 13, 2015
International petroleum economist

Albertans went to the polls on May 5 and elected an NDP government – after 43 years of Progressive Conservative rule. The shock waves reverberate.

At the same time, Alberta is experiencing drastically reduced revenue from oil and gas.

Under the Progressives Conservatives, a cosy relationship existed between oil companies and provincial government. How will it be with the NDP government? Its goals are said to include a review of oil and gas royalties; a small increase in corporate taxes; negotiation of new climate policies; and support for the Energy East and Trans-Mountain pipeline projects, rather than Northern Gateway or Keystone XL. Already, Premier-elect Rachel Notley is reaching out to assuage federal and corporate alarm.

For sure, the pressures from Ottawa, Washington and corporations will be great to bend Edmonton to their will. The blame game will be quick to start if the Albertan economy remains in the doldrums with weak oil prices. Coordinating and responding to pressures will be tricky given that provinces are in charge of natural resource management and the federal government leads the action at the international level. Alberta, however, does have an important role for Canada globally, as energy policies are central to geopolitics.

Previous global worries about peak oil have given way to worries about glut. For its part, Canada is a price-taker. Yet its oil output is burgeoning dramatically, as is U.S. oil output. Both countries are increasing their share of the world oil market, expecting other producers to roll over. In this sense, Alberta has contributed to the fall in world oil prices.

Previously, Saudi Arabia responded to increased world supply by cutting production. It has been the traditional “swing” producer. This time, it has refused to roll over. OPEC is no longer acting as a cushion, a regulator of world supply. With so much oil on the market, prices plummeted.

World oil prices are predictably unpredictable. The variables affecting supply and demand make projections extremely difficult. For example, oil exports are currently constrained by civil war in Iraq and Libya and by sanctions on Iran. Resolution of these constraints would bring much new oil to market. Published forecasts are unreliable and all too often political. Scenario “what-if” planning is the prudent approach.

Oil companies think globally; so do governments. Canada’s closest ally, the United States, treats petroleum as crucial to its aspirations of world hegemony. The State Department website identifies energy as central to national security, economic prosperity, and the environment. A core objective of its Bureau of Energy Resources is energy diplomacy, “to manage the geopolitics of today’s energy economy.” In the Middle East, the world’s energy heartland, Saudi Arabia has been under U.S. protection since World War II.

The world energy scene is riddled with geopolitics – concerns for energy security, power, supremacy. Pipelines are political too. Pipelines bind countries together physically, diplomatically, economically; and the route is critical. Much of recent geopolitics has been about pipelines, whether existing or planned, across Afghanistan, Iraq, Syria, Ukraine, the Balkans.

Petroleum is not like any other commodity, and the geopolitics are pervasive. Canada and Alberta are not immune to these pressures. In this broadest of games, Ottawa is a bit player, supportive of Washington. Unimpeded access to U.S. markets requires sweet relations with Washington. How events unfold in Alberta and Ottawa — and between the two levels of government — will be very interesting, and surely important, to watch.