Alberta Premier Rachel Notley Orders Oil Production Slashed To Fight Price Crisis

Marcus Newton
December 7, 2018

Alberta Premier Rachel Notley announced the production cuts "in response to the historically high oil price differential that is costing the national economy more than $80 million per day", her office said in a statement. After three months, production will be cut by 95k bpd through 2019.

Tim McMillan, president of the Canadian Association of Petroleum Producers, said the actions announced Sunday underscore a dire situation. The inability to build a major pipeline has put a ceiling on midstream capacity, and the bottleneck has swelled over time, ultimately leading to the latest announcement from Alberta ordering the shutdown of some oil supply. More crude is now moving across the border by rail and by truck, but it is not enough to clear the glut. Bloomberg reported that the benchmark for heavy oil, Western Canadian Select, jumped to $43.40 (CAD) a barrel, from $14.48.

Canada produces some 4.6 million bpd and exports about 3.3 million bpd to the United States, about 99 percent of Canada's total crude exports. For these reasons, a government-mandated production cut in Saskatchewan could result in a loss of jobs and economic activity in our province, but would have little impact on the price of oil because it would disproportionately impact conventional oil production, which is not the problem.

The controversial cuts are supported by many Canadian producers, but not all of them.

"With the government stepping in the way they did, companies are going to be far more inclined to have significant capital programs in 2019 so they can be ready to move that oil in 2020", said Alex Pourbaix, chief executive of Canada's third largest oil producer, Cenovus Energy.

In New York, the Dow Jones industrial average was up 287.97 points at 25,826.43. After that, the smaller, 95,000-bpd cuts will remain in place until year-end, to ensure that storage levels do not get too high again.

"Many of these policies (were) supported either by acquiescence or actively by the NDP government", said Kenney.

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The Alberta announcement came just hours after Russian Federation and Saudi Arabia agreed to extend their deal to manage the oil market into 2019, sending West Texas Intermediate prices up as much as 5.7 per cent. She added that the reduction will be subject to a monthly evaluation and that the curtailment amount will decrease over the year.

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

The price differential between Western Canadian Select and West Texas Intermediate has fluctuated in recent weeks, peaking at around C$45 a barrel.

And there is no sign whatsoever that any method developed to ship Alberta oil - whether in the form of rail cars, new pipelines or rehabilitated old ones - will not eventually be used to its fullest capacity, with predictable impact on global climate change.

A US federal judge also blocked a permit for construction of the Keystone XL oil pipeline from Canada and ordered officials to conduct a new environmental review.

The third project is the Trans Mountain pipeline, which is now owned by the Canadian government. It is unclear when construction will begin.

Next year, rail exports could nearly double from a record 270,000 bopd in September, according to company announcements.

Other reports by MaliBehiribAe

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