Analysis: Amid High Oilpatch Profits, Why Danielle Smith Wants to Offer Companies a New Subsidy | CBC

Pipeline plans and production

Premier Danielle Smith wants construction of the Pacific Link pipeline to begin in fall 2027. But with oil production already at record levels and several pipeline projects being developed or expanded, it is uncertain whether companies will produce enough crude to justify starting construction.

Smith said in September that she expected strong interest in filling the pipeline once companies understood the factors involved. The proposed subsidies are expected to target oilsands projects, which account for most of Alberta’s oil production and can substantially raise overall output.

Companies weigh expansion

Suncor Energy, Cenovus Energy, Canadian Natural Resources and Imperial Oil reported combined profits exceeding $12.5 billion in recent quarterly results. Some companies have indicated they are considering whether to accelerate new oilsands projects, while acknowledging support measures from provincial and federal governments.

Former Suncor executive Mark Little said companies are gauging whether investors will back expansion or prefer that firms keep returning profits to shareholders. He described the discussions as a way of testing investor interest in growth plans.

The Oil Sands Alliance declined to comment on the proposed incentives before an announcement. The last large oilsands project was built nearly a decade ago, Little said, making new investment important to the sector’s long-term future.

Debate over incentives

Little called the proposed provincial incentive “mystifying,” saying Alberta’s royalty system is already sophisticated, flexible and effective. He said a deadline for companies to develop properties they own could have merit.

Janet Annesley, a former executive at Husky Energy and Shell Canada, said Smith will need to explain to Albertans why more incentives should go to oil companies. Lennie Kaplan, previously a senior Treasury Board manager, estimates incentives are needed to spur billions of dollars in large-scale oilsands construction.

Kaplan’s calculations estimate that meeting Alberta’s goal of doubling oil production would require $115 billion in incentives from 2027 to 2050 under a scenario based on normal oil prices. The estimate includes $95 billion in royalty relief and $18 billion in additional construction subsidies.