Kenney calls for oil production cut as report paints bleak fiscal future for Alberta
The leader of Alberta’s official Opposition wants to see energy companies voluntarily reduce production temporarily to help address the oil price differential in the short term.
Jason Kenney said he’d rather see oil companies make this choice collectively than have government mandate it.
“I am therefore calling on Canadian upstream oil producers to act in the public interest by voluntarily reducing their production until inventories have been cleared, and the price differential alleviated,” Kenney said.
“There appears to be a consensus in the industry that such action would require a total reduction of some 250,000 barrels per day,” he said in a news release Tuesday.
“Several producers have already commendably acted to reduce production voluntarily. These efforts should be matched by all producers.”
Kenney said part of the oil price differential problem came from bad government policies that reduce revenues by billions and the inability to get pipelines built.
WATCH: Calgary economist recommends Alberta add up to 10% sales tax.
“The resource that they are developing belongs to all Albertans, who have a right to expect that producers will not act in a way that makes Alberta poorer. I therefore believe that the government of Alberta should keep the door open to using statutory tools to control production in the short term,” Kenney said.
On Monday, Premier Rachel Notley appointed three experts tasked with working with industry to come up with solutions to the oil price differential problem.
She said the price gap is costing the Canadian economy $80 million a day.
Notley said the differential is due to a lack of pipeline capacity to move a growing glut of Alberta oil to markets.
In an open letter to the premier, Kenney applauded the decision to create an expert panel and said he’d like to work with the group on possible solutions.
“I believe the vital economic interests of Albertans should transcend partisan politics,” he wrote.
Scroll down to read the full letter.
Watch below: As the huge discounts on Alberta’s oil remain in place and the provincial government is looking for ways to further diversify the industry. As Tom Vernon explains, it’s betting on upgrading at home.
Also on Tuesday, a report was released from the University of Calgary’s School of Public Policy that shows “a bleak path ahead” for Alberta’s fiscal circumstance.
“What we wanted to do was construct the most detailed, long-term analysis of Alberta’s fiscal future ever constructed,” economist and U of C professor Trevor Tombe said. “This goes far beyond what the government itself does in its long-run forecast.”
The report, called Alberta’s Long-Term Fiscal Future, examines long-term projections for resource royalties, federal transfer payments, investment income, property taxes, tuition revenue, health and education spending as well as debt service costs, and forecasts a shocking deficit by 2040.
“Despite growing resource revenues in the near-term, spending growth — especially in health — will begin increasing the size of Alberta’s future deficit early in the next decade,” economist Trevor Tombe said. “This is true even if the government’s own balanced-budget goal is met by 2023-2024.
“I project deficits on the order of nearly $40 billion by 2040 — or four per cent of GDP at the time. In today’s terms, that’s equivalent to over $14 billion per year.
“This is not sustainable,” Tombe said.
However, when asked about the report on Tuesday, Notley said the province was still on track to balance the budget by 2023.
“But, you know, for sure we have to make progress on the differential. The differential cannot continue at this pace for a long period of time — not only for our own fiscal concerns but also for the larger interests of economic growth, economic health in Alberta and across the country. Obviously, it’s a significant concern.
“We made relatively conservative assumptions in our budget this year and we far exceeded them in the first portion of the budget. Now that’s not the case but I think we’ll probably be okay for this budget.”
The premier said neither of the ideas proposed — 17 per cent cuts or a 10 per cent sales tax — were acceptable to her.
“Very few of us would be able to point to an economist who is consistently successful predicting what is going to happen six months down the road, let alone 22 years,” Notley said.
LISTEN: Trevor Tombe of the University of Calgary joins Rob Breakenridge to discuss the details of his report on Alberta’s fiscal future
“If we were to cut public services by 17 per cent, which is proposed by the U of C public policy group — and sometimes, depending on the day of the week, by the official Opposition — that we would see massive, massive damage to our economy and we would hurt people and communities and that is not a thing our government is going to do.
“The idea of imposing a 10 per cent sales tax on top of that would also be just be devastating for economic growth and recovery,” the premier said.
Tombe described current government policy as “wait-and-see policy.”
“It’s hoping the prices would have rebounded to levels prior to their drop. They haven’t, to date and there’s no reason to think they will in the foreseeable future.
“We have been on this royalty roller coaster for quite some time and the best time to get off the roller coaster is when it’s at the bottom,” Tombe said.
Watch below – Nov. 15, 2018: A massive discount on the price of Alberta oil has Cenovus asking the government to step in. As Tom Vernon explains, the oil company wants the premier to follow Peter Lougheed’s lead.
The report includes policy recommendations for the Alberta government, including that it should:
- Construct a set of clear, consistent and comprehensive measures of the fiscal gaps and report on these measures regularly
- Set clear and measurable objectives for a target fiscal gap in the short-, medium- and long-term
- Be open with Albertans about the scale of the challenge and the potential options available. Lead a discussion and debate, involving stakeholders from across Alberta to gain consensus for action
- Accept when measures do not work, try new ones and double down on ones that succeed
While the report says the future looks bleak, Tombe says there’s still time to turn things around.
“There’s a lot of options available both on the revenue and on the spending side. The challenge here is action needs to be sustained over time because these challenges grow as the aging population adds significantly to health costs and as royalty revenue growth rates decline.”
Click here to read the full U of C School of Public Policy report.
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