Alberta is lifting the mandatory curtailment of oil production as of December 2020 since there is enough space on pipelines to allow producers to utilize available pipeline capacity and create jobs, the provincial government said on Friday.
The mandated production limits were set in place by the previous government of Alberta after takeaway capacity constraints in late 2018 led to plummeting prices of Canada’s oil.
As Canadian oil production was growing, takeaway capacity constraints and maintenance at U.S. refineries in the fall of 2018 drove down the price of Western Canadian Select (WCS)—the benchmark price of oil from Canada’s oil sands—to as low as US$14 a barrel in October and November, with its discount to WTI at around US$50 a barrel.
In early December 2018, the Alberta government moved in to shore up the price of Canadian heavy oil, and in the most drastic measure yet, the province of Alberta mandated an oil production cut of 325,000 bpd beginning in January 2019.
The cut now ends as of December 2020, although the government will extend its regulatory authority through December 2021 to curtail oil production again, if necessary.
The government “will not set production limits due to 16 per cent of Alberta’s crude oil production remaining offline, down from 22 per cent at the start of the COVID-19 pandemic. At this time the Government of Alberta does not plan to resume production limits,” the government said.
Production capacity in Alberta continues to exceed pipeline capacity because of delays in major pipeline projects, but due to the pandemic and economic downturn, Alberta’s oil companies have been producing well below the established production limits for several months.
“Current forecasts show that inventories are expected to remain low, with sufficient export capacity to allow the system to operate efficiently on its own well into 2021,” the government said, adding that if crude inventories approach full capacity, it could bring back production limits, giving 30-60 days advance notice to producers.
By Tsvetana Paraskova for Oilprice.com
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