Calgary·Q&A

Middle East oil tensions make case for pipelines in Canada, says oil analyst

The attack on an oil processing plant in Saudi Arabia could have a variety of consequences here in Canada, including making the case for more pipelines.

When wallets are affected, public opinion can shift, notes Richard Masson

In this Sept. 14 photo, a satellite image from Planet Labs Inc. shows thick black smoke rising from Saudi Aramco's Abqaiq oil processing facility in Buqyaq, Saudi Arabia. (Planet Labs/The Associated Press)

The attack on an oil processing plant in Saudi Arabia could have a variety of consequences here in Canada, including making the case for more pipelines.

Richard Masson is an executive fellow at the University of Calgary's School of Public Policy, vice-chair of the World Petroleum Council of Canada and an executive with a partial upgrading company called Fractal Systems.

He offers his perspective on what could happen next after the weekend attack.

This interview has been edited and paraphrased for clarity and length. You can listen to the complete The Homestretch interview right here.

Richard Masson is an executive fellow at the University of Calgary's School of Public Policy and vice-chair of the World Petroleum Council of Canada. (Anis Heydari/CBC)

Q: What's your reaction to the attack?

A: It's a very big deal, it is unprecedented to lose that much production. To see it happen with just a few drones, it makes you really concerned with what could happen if there was a further escalation in hostilities.

So much of the world's production comes from that part of the Middle East. There is a real risk that we end up in a bad situation.

Q: Saudi Arabia produces about 10 per cent of the world's oil production and we just lost half of that. Is that accurate?

A: That's exactly right. Saudi Arabia produces about 10 million barrels of oil a day, and about 5.7 million was shut down by this drone attack.

It is a big portion of the world's supply. They can repair, but there is no easy way to replace it, in a global context. It takes a lot of time and money.

Q: What does this mean in terms of global supply?

A: If the U.S. decides it wants to retaliate against Iran, it could lead to escalation and a lot more production shut down. That's the concern. It's built a risk premium into the price of oil. Part of the increase is less supply but part of it is fear of what happens next.

Q: What does this mean for Alberta oil and gas?

A: We produce 3.5 million barrels a day. Getting that premium of $5 to $8 a barrel more for everything we produce is very healthy for the companies.

Governments collect about 40 per cent of the revenue through taxes and royalties, so higher prices will mean better balance sheets for companies as they pay down debt and buy back equity, and governments collect more than they would have.

Unfortunately, because we don't have enough pipelines to get oil to markets, there is not a lot of incentive for companies to reinvest that money for new production.

Alberta is not positioned to help the world overcome the supply shock because we can't get more oil to market.

It's an unfortunate situation.

Q: Consumer price at pumps, what happens?

A: It could go up a few cents a litre. One component of the overall price is the refining margin, turning oil into gasoline, diesel and jet fuel, and then there are all the taxes.

The price going up 14 per cent, could lead to a five per cent increase at the pump.

We will see that over the next few days.

Q: Do world events like this change public attitudes in Canada about pipelines?

A: It could. When it starts to affect consumers directly, if we get that far down the line, people start to say, "Gee, that isn't really what we signed up for."

If we have to produce oil somewhere in the world, we should have a reliable supplier like Canada and not be so concentrated on areas in the Middle East that have potential for outages through hostility.

There is a lot of oil in that region that could be at risk.

With files from The Homestretch.

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