Letter from Canada’s Minister of Natural Resources, the Honourable Amarjeet Sohi, to Mr. C. Peter Watson, Chair and Chief Executive Officer of the National Energy Board

Canada’s Minister of Natural Resources, the Honourable Amarjeet Sohi, released the following letter to Mr. C. Peter Watson, Chair and Chief Executive Officer of the National Energy Board:

Mr. C. Peter Watson
Chair and Chief Executive Officer
National Energy Board
517 Tenth Avenue South West
Calgary, Alberta  T2R 0A8

Dear Mr. Watson:

I am writing to seek the advice of the National Energy Board on options that may exist to further optimize oil pipeline capacity out of Western Canada. The price discount on Canadian oil relative to North American and international benchmarks has grown dramatically over the latter part of 2018. At current levels, in excess of US$30 per barrel, the discount could potentially reduce gross domestic product by billions, and negatively impact government revenues and employment in the energy sector. For example, Alberta estimates that this year, the current discount is costing approximately C$80 million per day in lost value. I am deeply concerned by these recent developments and their impacts on Canada, particularly in Alberta.

While the discount is not a new phenomenon, its current extent and recent spread to lighter oil grades are both unprecedented and might signal systemic transportation issues that warrant further investigation. It is imperative that Canada’s oil pipeline transportation system operate as efficiently as possible, and in a way that benefits the Canadian public interest. This is particularly true in circumstances where pipeline capacity is constrained, as appears to be the case today based on apportionment levels and the growth of oil by rail.

At the same time, in light of the Line 3 Replacement and Keystone XL pipelines approved by the Government of Canada, current transportation challenges are unlikely to be long-term in nature. This is a significant positive for Canada going forward, but may also serve as a deterrent for shorter-term actions or investments by the private sector that would otherwise alleviate the discount.

In light of the foregoing, I am asking the National Energy Board, pursuant to subsection 26(2) of the National Energy Board Act, to provide advice on potential short- and long-term options to alleviate pipeline capacity constraints. The advice should address three key questions:

1. Is the current monthly nomination process to access available capacity on oil pipelines functioning appropriately, consistent with the “common carrier” provisions of the National Energy Board Act and efficient utilization of pipeline infrastructure (for example, by auctioning uncontracted export capacity to smaller producers)?
2. Are there any other impediments to the further optimization of pipeline capacity that could be addressed by the National Energy Board, governments or pipeline companies, in the short-term and long-term?
3. Are there short-term steps to further maximize rail capacity that could be addressed by governments to alleviate the current situation?

In formulating this advice, the Board should consider developing options that the government could pursue and, wherever appropriate, utilize National Energy Board staff and other agencies of the Government of Canada to obtain technical, economic and statistical support.  In this regard, and in order to expedite work on this issue, Natural Resources Canada has established a federal-provincial interdepartmental working group on the oil price differential, which includes the National Energy Board and the Government of Alberta. In addition, the Board may wish to consider engaging with the Alberta Energy Regulators as well as the Canadian Transportation Agency, on the above-noted items.

Given the sense of urgency and the severity of the impacts on Canada and Alberta, I would appreciate a report on this matter as soon as possible.

Sincerely,

Amarjeet Sohi, P.C., M.P.