A rising oil price and potential U.S. approval of the Keystone XL pipeline could be good news for Alberta’s oilpatch, according to a top energy scholar.
But Dr. Harrie Vredenburg with the University of Calgary’s Haskayne School of Business said it remains to be seen whether an agreement between OPEC members and other countries to reduce production will actually stick.
“It’s impressive that OPEC has actually come to an agreement,” said Vredenburg, after Saudi Arabia surprised the market by saying it will cut more than previously agreed.
“The biggest issue has always been enforcing the agreement, and there’s always a great temptation for members of OPEC, and in this case also members beyond OPEC, to agree to something and then to cheat on what quota they’ve agreed to, and that is the biggest risk, obviously, that’s happening right now.”
Non-OPEC nations said Saturday they will reduce output by 558,000 barrels a day, adding to a Nov. 30 OPEC commitment to cut 1.2 million starting in January. Brent crude has surged more than 20 per cent since OPEC announced its first cut in eight years. Prices jumped as much as 6.6 per cent to $57.89 a barrel in early Monday trading.
Members of the oilpatch were also reacting Sunday to indications from incoming U.S. president Donald Trump that he will move quickly on Keystone XL.
Mark Cooper, a spokesman for TransCanada, the Calgary-based firm behind the pipeline project, said the company remains committed to Keystone XL, but would withhold further comment while the U.S. government is in transition.
Trump will be inaugurated on Jan. 20.
Vredenburg said while the pipeline project would be a good thing for Alberta, he would prefer to see a Canadian pipeline to the coast.
“I think it’s in Canada’s interests to see a pipeline to tidewater in Canada, so we have control over our own destiny,” he said.
As Calgary’s oil and gas sector reacted to news of the OPEC plan, Vredenburg said he senses the mood around town has been “elated, but guardedly so.”
“But, I wouldn’t be holding my breath that this is going to be any great, new mega-cycle that we’re going into,” he cautioned.
“It does look like, somewhere in the band between $50 and $60 (a barrel). If we can maintain that, given what we’ve seen in the past two years, that will be a big boon, and I think we’ll see pick-up of activity in Alberta and around the world as well.”
The agreement is the first between OPEC and non-OPEC producers since 2001. It underscores the resolve to end a market-share war that exacerbated a global oversupply and caused prices to slump by 75 per cent. The OPEC and non-OPEC plan encompasses countries that pump 60 per cent of the world’s oil, but excludes producers such as the U.S. and Canada.
Vredenburg said the second issue is whether the resolve that the OPEC countries have come to will be maintained when they see that oil production from North America is not going to slow down.
“Because we don’t have a centralized administration system of oil production in Canada and the United States . . . it doesn’t take very much of a price increase at all to stimulate more production,” he said.
“But I think everybody wants it to happen, so we may see some discipline in here.”