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Canada’s Output Cuts Are A Positive Thing

First, they said the production curtailments will remain in place until some 35 million barrels of excessive inventories are cleared. Then they said producers only need to wait until Enbridge’s Line 3 is commissioned at the end of 2019, creating a new conduit for ever-increasing Canadian production. This was all in December 2018 when then-Alberta premier Rachel Notley introduced mandatory output constraints for all major producers. In September 2019, the new Alberta Premier Jason Kenney and his government declare that the production quotas will be extended for another year, on the back of Alberta’s lifeline, the Line 3 pipeline, being delayed by legal proceedings in the United States. Is it really worth it?

It is important to remember that the Alberta dilemma – choosing between a market-driven yet very depreciation-prone pricing regime or boosting prices by mandating curtailments that punish the big and spare the small – is not a struggle between politicians and business. Both major political parties present in Alberta supported the production quotas because they brought in additional money for the regional budget. But companies were in it, too. Cenovus Energy, Canada’s fourth-largest producer, was one of the most vocal proponents of such production cuts, whilst the second and third-largest producers in Suncor and Imperial Oil opposed the move and still express reservations to its prolongation.

Cognizant of the reputational risks inherent…




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