Alberta has announced an extension of the obligatory oil production cuts approved by the previous government on the grounds that it is uncertain when new pipeline capacity would come on stream.
Reuters reports the cuts would be extended by another 12 months until the end of 2020.
The cuts first made headlines in December amid mixed sentiments in the industry. While some oil sands operators welcomed the news, others, which have both upstream and downstream operations, criticized them.
At the time, Premier Rachel Notley said production had to be curtailed because pipelines were running at capacity, the Trans Mountain expansion remained in limbo, and production was rising. This had pressured Canadian crude prices to discounts of up to US$50 per barrel against West Texas Intermediate.
The cuts, originally of 325,000 bpd, worked immediately: prices rebounded and in a few months excessive inventories had shrunk. In February, Suncor said it expected the cuts to end sooner than the end of 2019 as originally planned, thanks to the recovery in oil prices. This is now turning out to have been wishful thinking.
In March, the government relaxed the cuts as a result of the positive effect they’d already had on the industry, but now the new government’s extension means not all is well yet.
Energy Minister Sonya Savage told media the extension had been prompted by delays in planned pipeline capacity expansion, noting the replacement of Enbridge’s Line 3. These delays could cause an excess of 150,000 bpd in production relative to both pipeline and railway capacity, Savage said.
“We’re doing this because we have to. In the short term, we don’t have the capacity to move the production,” Savage said.
On the flip side, the government also raised the exemption bar for the cuts from 10,000 bpd to 20,000, beginning from October. This means that only 16 of the 300 oil companies in Alberta would need to keep a cap on their production.
By Irina Slav for Oilprice.com
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