Alberta plans for oil production cap
Published Monday, December 3, 2018 8:54PM MST Last Updated Monday, December 3, 2018 9:00PM MST
Alberta had no choice but to cap oil production, says Premier Rachel Notley.
On Sunday, Notley announced oil production in Alberta would decrease by 325,000 barrels per day, starting January.
According to the provincial government, Alberta currently produces more oil than can be transported—by about 190,000 barrels of raw crude oil and bitumen every day.
The situation has resulted in what the government calls a “storage glut”—a record-high amount of oil being diverted to storage that is nearing capacity.
Notley said Monday the curtailment is the result of low oil prices, a backlog of product and no new pipelines to other markets.
“Canadians understand that what we have going on right now is fiscal and economic insanity, and we just have to stop giving away our most important commodity for free,” she said.
“And they want action from all of our political leaders who have an impact and mobility to have agency on the situation—that includes those leaders in Ottawa.”
Canada’s national Natural Resources Minister Amarjeet Sohi said the federal government has been supporting the province in “exploring options.”
In October—when the price differential for Western Canada Select and West Texus Intermedia peaked—WCS averaged $41 USD per barrel, while WTI averaged $71 USD.
The province estimates the production cap will add about $1.1 billion to provincial revenue by narrowing the price differential by about $4 per barrel, relative to where it otherwise would be.
Notley’s announcement received mixed reviews from industry members.
The head of Alberta’s oil and gas coalition, Boots and Suits, told CTV News he wonders if the cap will have any effect.
“I’m hearing already there’s some opposition inside some of the producers,” Rick Peterson said. “Politically, it seems to make sense in the short term. Long term, I’m not too sure.”
He added: “I do know it’s going to be a lot harder to roll out than it was to announce.”
Cenovus President and CEO, Alex Pourbaix, told CTV News a continuation of the status quo would have been worse.
“If we were faced with another year of $35, $40 discounts on our oil, Cenovus would have had to cut back seriously on its capital program, and it would have had significant impacts on our contractors.”
The government said it planned to ensure businesses of all sizes fairly decrease production by enacting a 10,000 barrel-per-day exemption.
The hope is that the backlog of 35,000,000 barrels of oil will be gone by spring, although the production cap will remain in place until the end of 2019.
Notley also discussed Alberta purchasing 7,000 oil tanker cars to move product by rail.
With files from David Ewasuk