CALGARY—Alberta Premier Rachel Notley is downplaying concerns that a lifting of Iranian sanctions would harm the province’s energy sector, though experts warned the Islamic republic’s nuclear agreement could result in an increase in global oil supply, thereby pushing back any recovery.
The historic deal reached between Iran and six world powers has opened the possibility that Iranian oil could again be flowing freely on world markets after increased sanctions in 2012 cut a million barrels a day from the country’s exports.
Notley said on Tuesday, July 14, that it’s possible the lifting of sanctions for Iran could have “a bit of a suppressing effect on oil prices for a period of time.”
“Like many Albertans, we talk about oil prices much like we talk about weather, and in both cases, we’re used to change,” she said in a teleconference call from Quebec City, where she met earlier with Premier Philippe Couillard.
“Alberta’s a province that has been built on dynamic commodity prices and we’ve seen oil go up, we’ve seen oil go down, and throughout it all we’ve seen the resilience of our economic infrastructure.”
But Laura Lau, senior portfolio manager at Brompton Funds, said the deal could cause oil companies to scale back investment plans.
“It’s definitely not good,” said Lau. “I think it’s difficult for any North American (oil producer), whether it be Canadian or U.S., and I think they’re going to have to rethink their capital spending programs and their production growth.”
Lau said she doesn’t expect a significant drop in oil prices because the Iran deal had already been priced into the market, and Iranian oil won’t hit global markets until at least early next year.
But she said with Iran holding millions of barrels of oil ready to be shipped, and upwards of 500,000 barrels a day of production ready to start up, projections are already showing slower oil price increases.
Iran, which holds the world’s fourth-largest proven oil reserves and second-largest proven gas reserves, could also ramp up production further with increased capital investments, Lau added.
Saudi a Bigger Concern
Aston Hill Financial portfolio manager John Kim said the short-term effects of potential Iranian oil exports weren’t a great threat to the Alberta oilpatch.
“This is a 93 million barrel a day global market, so another 400,000 is half a percent, so it’s not like it’s a big number,” Kim said. “But it just doesn’t help the cause.”
He said Saudi Arabia, which had record June production, is greater cause for concern.
“I think the bigger concern for people is that Saudi production seems to keep going up all the time,” said Kim. “It doesn’t seem to want to come down or even stabilize.”
Notley said it’s too soon to say how the Iran deal could affect Alberta’s efforts to sell more of its oil to lucrative markets abroad, particularly in Asia.
“A lot of things … are going to happen internationally that have impacts on the price of oil, both good and bad, but we know generally speaking that market access has to improve,” she said.
At a local funding announcement in Toronto, federal Finance Minister Joe Oliver declined to speculate how the Iranian deal would affect oil prices, but said he was monitoring the market.
“We’re dealing with a global energy market and as you know, the price of oil is affected by supply and demand,” he said. “As a net exporter of energy, particularly oil, we are impacted by that, although the impact is felt unevenly across the country.”
The nuclear deal with Iran announced Tuesday was negotiated by the U.S., Britain, Germany, France, China, and Russia.
‘Growing Sense of Frustration’
Meanwhile, Saskatchewan Premier Brad Wall launched a vigorous defence of the energy industry Wednesday, saying he is growing concerned that oil and gas development is increasingly being viewed as a liability by the rest of the country.
“We need to be more sustainable in development, but increasingly the dialogue in the country seems to be heading in the direction where somehow oil and gas is something we ought to be ashamed of,” Wall told reporters in Saskatchewan before he headed out for the annual Council of the Federation in Newfoundland a day late because of forest fires burning in his province.
“I just categorically reject that.”
Wall, who heads the right-leaning Saskatchewan Party, took aim at the outcome of a meeting between Notley and her Quebec counterpart Philippe Couillard, a Liberal, earlier this week.
Notley emerged from the face-to-face to say she is hopeful Quebec will get behind the Energy East oil pipeline, provided her province does its part to fight climate change and protect the environment.
“We can do a better job of ensuring energy development is sustainable—that’s fair,” Wall said. “But I do not think any province in Confederation should be holding up approvals of a pipeline … by saying: ‘We don’t think your environmental policies are stringent enough’ or maybe: ‘We don’t like how you price carbon.'”
He said the energy industry creates jobs and its success funds programs such as equalization, which transfers money from the federal government to less-wealthy provinces, including Quebec and Ontario, to fund equal levels of public services.
“I think there is a growing sense of frustration here because our economies in the West have been creating significant opportunities for all Canadians,” Wall said.
“Maybe we need to have equalization payments start flowing through a pipeline to finally get one approved through Central Canada.”
While Notley is in favour of Energy East and Kinder Morgan’s Trans Mountain expansion to the Vancouver area, she has said her government won’t lobby for the Keystone XL pipeline in the United States or Enbridge’s Northern Gateway proposal across northern British Columbia.
Alberta recently toughened up its emissions rules for large industrial emitters, and doubled the province’s carbon price to $30 a tonne by 2017 for those that exceed their limit. An expert panel is examining Alberta’s broader climate change policy.