Quote:
Originally Posted by GullFoss
You're ignoring the following:
1) downstream refining companies in the Midwest are holding Canadian upstream companies captive because they have crazy pricing power because we are short pipeline capacity. The refiners own the pipeline capacity. Profits are not going from Canadian MEG to Canadian Suncor. It's going from Canadian MEG to USA Phillips 66 and USA marathon refining.
2) Suncor, imperial and husky are shifting their upstream profits in Alberta to downstream profits in other jurisdictions. So Alberta suffers a lot in terms of lower royalties and taxes, while Ohio and Colorado benefit. That's why Suncor isn't worse off...it's because they don't have to pay fair royalties or taxes right now.
3) those with refineries are using predatory strategies around air barrels and a strong marketing position to game prices and keep them artificially low.
4) there is a limit to how much sagd and CSS companies can cut because of potential damage to the reservoir.
5) the 3 large integrated producers are a huge share of production and we need their participation to make the program work.
6) Two of these players are foreigned owned (IMO and HSE) so they care a lot less about what's best for the industry and province. Money is going from Canadian Meg to li ka shing in China.
7) Each of IMO, HSE and SU want to take advantage of the current enviornment to buy competitors at distressed prices. That's why Suncor is planning layoffs in advance of it's next purchase (maybe Total Canada). That's also why Husky is buying Meg on the cheap.
For all these reasons markets aren't perfectly competitive. And when markets aren't perfectly competitive, the government should step in. Even moreso right now because the government owns the resource.
The solution needs to be that upstream only companies like Meg and cnrl need to cut more than the integrated producers. But the integrated producers do also need to cut as well for the reasons mentioned above.
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Awesome post. Laut basically insuitated as much in his interview with BNN that background assumptions in how production and transportation should be carried out worked fine with spare pipeline capacity but now that that has essentially been breached it is no longer a true market. That point might still be up for debate but it is one of governments core mandates to preserve a properly functioning and fair market.