Why cutting oil production seems so utterly un-Albertan

Calgary, in particular, loves to tout its entrepreneurial spirit. It’s the place where business should thrive and there’s no need for a government helping hand.

That’s why the decision by the Alberta government to order a mandatory production cut by the oil industry seems rather un-Albertan. The move flies in the face of how many people in the province self-identify. It’s especially uncharacteristic if one pictures what’s happened in recent weeks — the majority of the oilpatch pleading with the left-leaning NDP government to interfere in the market.

‘A big step’

Beginning January, Alberta will impose mandatory production cuts on the oil sector — a measure aimed at reducing an oil glut that’s punished the price of Canadian crude.

Mandated oil production cuts are the kind of thing that’s expected from Saudi Arabia and OPEC, not Canada.

“To have a government intervene in a free market, which will create winners and losers, is just such a big step from the past 30 years of a deregulated marketplace,” said Richard Masson, an executive fellow at the University of Calgary’s School of Public Policy who has three decades of experience in oilsands development, energy marketing and finance.

“It’s right up there with the most difficult things Alberta has ever had to do,” he said.

In recent years, the oil industry has aired complaints about government policies driving away investor confidence. Now, it’s the majority of the oilpatch wanting government intervention — precisely what investors traditionally dislike. It’s like inviting poker players to a casino where the dealer might change the game on the fly.

“Free markets work and intervention carries trade risks and sends a negative message to investors about doing business in Alberta and Canada,” said Imperial Oil chief executive Rich Kruger, in a statement. Imperial, Suncor and Husky all oppose the production cut.

‘I really am a free market person …’

In the lead up to Sunday night’s announcement of an extraordinary intervention by Premier Rachel Notley, self-described free market champions put their beliefs aside to urge the government to order the production cut. Many of those people needed to preface their endorsement by reinforcing their libertarian views before supporting government intervention.

Even following Notley’s decision, the trend continued.

“I really am a free market person,” said Alex Pourbaix, the chief executive of Cenovus Energy, in an interview on Monday with CBC News. “But I only came to the conclusion that government intervention was merited when I understood the true devastating impact that these wide differentials were going to have on the Alberta economy, the Canadian economy and the upstream industry.”

“We were about to see wholesale devastation in the upstream industry over the next year. For me, that’s the reason I supported this almost-unprecedented involvement by the government.”

It seems free market beliefs are set aside when tens of millions of dollars are being lost every day and job losses are set to mount (around the holiday season, no less). Make no mistake, the financial pain was already starting to hit the oilpatch and experts say widespread layoffs, spending cuts and company bankruptcies were on the horizon.

‘Government has to act’

There is a feeling in Alberta that the economy is fragile. While the province has slowly climbed out of a recession, it has hit an oil slick with the recent oil price collapse and the economy may fall straight back into a downturn.

“There are times when government has to act,” said Peter Donolo, vice-chairman of public relations firm Hill+Knowlton Strategies Canada. He points to former Prime Minister Stephen Harper putting aside his free market beliefs to bail out General Motors in 2009.

The question now is what the future holds when a precedent like this is set. The fact is, Canadian oil prices fall far below prices elsewhere in North America somewhat frequently. Former premier Alison Redford described it as the “bitumen bubble” in 2013 as oil prices were about $35 US lower per barrel in Alberta compared to the U.S. benchmark. In January of this year, the outage of the Keystone pipeline was one reason the differential swelled to more than $25 US.

Recently, Canadian oil sold at a discount of more than $50 US per barrel, but it has narrowed in recent days to around $30 US. Over the last decade, the oil discount has become more than $20 US per barrel at least 10 different times.

In the future, every time there is financial pain in the oilpatch, the government may be expected to step up and tip the scales in industry’s favour again.

Past interventions

Alberta does have a history of government intervention, whether it was former premiers William Aberhart printing money during the Great Depression of the 1930s or Peter Lougheed’s government owning several Crown corporations including an airline during the 1970s and 1980s. Lougheed, too, mandated oil production cuts in his battle with the federal government.

Still, the latest oil production cut by government would appear to run counter to the Alberta psyche.

“Of course it does. It upsets a lot of apple carts,” said Keith Brownsey, a political science professor at Mount Royal University. “A lot of people think free markets are the solution to every problem that society faces. That’s simply not true.”

Even a few months ago, most observers would not have guessed the majority of Alberta’s oilpatch would lobby the provincial government to meddle with the market.

It seems everyone wants government out of their way, until there is something government can do to help them, even in Alberta.