Alberta announces short-term oil production cuts to address price differential

Alberta Premier Rachel Notley in Ottawa on Nov. 28 2018.					James Park for National Post

Alberta Premier Rachel Notley in Ottawa on Nov. 28 2018. James Park for National Post

Alberta produces 3.7 million barrels a day, but that is 190,000 barrels more than can be shipped. The surplus is filling storage up quickly. The cuts will then drop to 95,000 bpd until December 31, 2019.

Cenovus Energy proposed the idea of a production cut last month.

The first 10,000 bpd for each producer will be excluded from the mandatory cuts, meant to avoid negatively impacting small producers.

Notley announced the province will impose across-the-board cuts amounting to 8.7 per cent of output to reduce a growing glut of oil that is forcing Alberta oil to sell at steep discounts compared with the North American benchmark.

"We're facing, I think, something that qualifies as a crisis, or very almost that, and there are no other tools available to the provincial government so given that the market or even coalition of players in the market can't do this on their own without running afoul of price fixing laws, this is something that makes a lot of sense for all of the parties but I give full credit, not just to the fact that they are agreeing on this, but that they're saying that they don't want this to be about partisan politics and they want it to be about the interests of Alberta and I have no question that Albertans want to see more of that kind of collaboration", she said. "I can't promise the coming weeks and months will be easy", said Notley in a news release. However, the Imperial and Husky companies said Friday that they opposed non-voluntary production cuts but supported the rail investments because that could help improve market access. That additional rail would add 120,000 bpd in takeaway capacity but wouldn't be available for another year, and would take time to scale up.

"If we are going to solve this problem once and for all, the low price era must end". Any effort to cut output by one company only stands to benefit another.

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Not all the producers were happy with the Notley's order, with critics arguing that the markets can deal better with prices.

"While curtailments have been used before by previous governments, we believe they should only be used for a short period of time, and only in extreme cases", said a statement by Cenovus CEO Alex Pourbaix.

"It makes no sense for Alberta to stand by while it's valuable oil resources sell for next to nothing, the provincial treasury loses up to $100-million a day, job losses continue to mount, and our industry suffers billions of dollars in long-term value destruction".

It's worth noting that years of pipeline fights from environmental groups, local communities and First Nations are bearing some fruit. That gap hit around $50 in late October due to a lack of pipeline capacity to get Alberta oil to market. Industry groups and pundits scolded protestors, declaring that the oil would find its way to the market one way or another.

A number of pipeline projects to the United States, as well as to the Pacific and Atlantic coasts, have been cancelled or delayed over the past decade as energy production in Canada's oil patch has continued to grow.

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