

Last week, OPEC and Russia announced a deal to reduce their daily production by 9.7 million barrels. There was hope that this would help improve the fortunes of the Canadian crude market. This did not happen.

World oil prices fell nearly 40 per cent at the start of the trading week, the largest one-day drop in modern history, according to Bloomberg.

West Texas Intermediate, the benchmark price for North American oil, fell to US$10.77 a barrel on Monday.

The demand for fuel has collapsed by 25-35 per cent, as millions are now unemployed or working from home, with the airline industry at a standstill.

A growing number of producers are willing to pay buyers to take oil off their hands due to a lack of storage space for unwanted oil. “Landlocked” producers are particularly desperate for this, such as those in Alberta’s oilsands and some producers in the U.S., who have limited access to global oil shipping routes.

A doomed insdustry still pushed into the forefront, by bailouts

On Sunday, Prime Minister Justin Trudeau announced aid worth $1.7 billion to cleanup abandoned and orphaned oil wells.

This constitutes yet another bailout of the oil industry.



The Canadian government also gives the oil industry $3.3 billion a year in subsidies, which Environmental Defence described as amounting to “paying polluters $19/tonne to pollute.”



Yet another bailout is the infamous public purchase of the Trans Mountain pipeline, which could now cost up to $9.9 billion dollars. On March 31, Alberta Premier Jason Kenney announced the injection of $1.5 billion in taxpayer money into the controversial Keystone XL project, in the hopes of using it to shuttle oil to the southern United States by 2023.

This is in addition to a potential $15 billion direct bailout of the industry, which the Trudeau government is actively considering.



In 2017, the biggest oilsands companies paid a royalty rate of only 23.37 per cent of profits. The companies producing Alberta’s oil generated $10.14 billion in profits, and only payed $2.37 billion in royalties.

Whereas, Norway charges a special petroleum tax rate of 55 per cent. This has enabled them to grow the Norwegian Oil Fund to more than $1 trillion (USD), making every citizen effectively a millionaire.



Regardless, with significant profits made, there was a clear financial capability for these companies to create rainy day funds to protect themselves from unexpected events. Instead, Canadian oil patch companies paid their executives more than a combined $61 million payout in 2019 alone. Now these companies cry for help, when they had every capability of protecting themselves.

If these oil companies do collapse, they will leave a devastating bill to pay.

Global News reported that cleaning up the Alberta oil patch could cost an estimated $260 billion. This information obtained by Global, was revealed in a presentation by a high-ranking official of the Alberta Energy Regulator to a private Calgary audience in February.



The official also warned that it may take more than 2,800 years to clean up some of the decommissioned oil and gas wells currently dotting Alberta’s landscape.



Time to move on



With oil prices collapsing, and the Canadian government being required to bailout the industry on a seemingly semi-annual basis, it is clear that oil is a dying industry.



Without an effective oil fund, there will be no level of bailouts which will be able to save the industry, when it meets its end. A Green New Deal must be embraced urgently, as it would allow Alberta to diversify its economy, and save itself from a decade-long economic depression.