Alberta cutting back oil production

EDMONTON – Days after an op-ed in the Edmonton Journal hinted at the curtailing of oil production, Alberta Premier Rachel Notley has officially announced the province will be cutting back producing the main driver of Alberta’s economy for the next year.

Notley said the province will be reducing oil production by 325,000 barrels per day–an 8.7 per cent reduction–to help address the storage glut. The restriction will come into effect in January and will be in place until Dec. 31, 2019.

She said the price gap that is forcing the government action is caused by the federal government’s decades-long inability to build pipelines.

“Ottawa’s failure in this area has left Alberta’s energy producers with few options to move their products, resulting in serious risks for the energy industry and Alberta jobs,” reads a release from the province.

The curtailment is expected to reduce market volatility and “narrow the differential by at least $4 per barrel relative to where it otherwise would have been and add an estimated $1.1 billion of government revenue in 2019-20 – money used to pay for roads, schools and hospitals.”

The price differential for Western Canadian Select (WCS) versus West Texas Intermediate (WTI) has been around $30 to $50 U.S. recently, peaking at $52 in October. Notley said the government has a duty to protect resources as they are owned by every Albertan.

“But right now, they’re being sold for pennies on the dollar. We must act immediately, and we must do it together. I can’t promise the coming weeks and months will be easy, but I can promise we will never back down in our fight to protect jobs and the resources owned by all Albertans. I will never stop fighting for Alberta,” she said.

Notley told reporters at her announcement that it doesn’t matter the size of the oil company, producers big and small will be affected.

“We have set out a 10,000 barrel [a day] exemption for all producers. Obviously, if you’re a small producer the value of that exemption is greater for them than it is for the larger producers. But we think this is a good way to allow for that flexibility that’s needed and that exists within the industry to accommodate these changes,” she said.

The opposition leader said he agrees with Notley’s action; the UCP’s Jason Kenney says Alberta should have never been in this situation to begin with, criticizing Ottawa for killing pipeline projects.

He said he commends the premier for following through on a suggestion he had brought forward, adding he doesn’t believe government action will result in the loss of jobs. Kenney also said the oil crisis isn’t specific to our province and he thinks Saskatchewan should follow Alberta’s lead in curtailing production to help close the price gap.

The one thing he would change in the action is to increase the 10,000 barrel a day exemption for small producers.

The Canadian Association of Petroleum Producers (CAPP) says this action by the province emphasizes an absolutely dire situation the energy industry is in.

“The Canadian oil and natural gas industry has faced a number of significant challenges over the last few years, including the cancellation of major pipeline projects such as Northern Gateway and Energy East, as well as unacceptable delays to other projects – all contributing to the wide differential we are experiencing today,” reads a statement from CAPP president and CEO Tim McMillan.

“Actions such as those announced today, underscore the dire situation in which we find ourselves. It further reinforces the need for Canada to increase exports of our oil and natural gas to existing and new markets, which will ultimately help meet global demand and expand our customer base.”

Cenovus Energy has also issued a response to the measures, saying under normal circumstances oil and gas producers would never advocate for government intervention.

“These are not ordinary circumstances,” reads the statement from the company’s president and CEO Alex Pourbaix.

The statement goes on to say this is an extreme case in need of curtailment.

“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.”

Pourbaix’s statement says the measures will help balance the market for now until new rail and pipeline capacities become available.