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Alberta’s Premier Rachel Notley announced that the government of the province will enact an 8.7-percent crude oil production cut to clear excess stockpiles as pipeline bottlenecks have plunged the selling price of Western Canadian grades to deep discounts against West Texas Intermediate.
Reuters reports the cut will remove 325,000 bpd from Alberta’s average daily production rate but it will only be in place for a short while, until the glut clears. Once this happens, the cut will be reduced to 95,000 bpd, to remain in place until the end of next year.
Canada’s biggest oil producer has been struggling to get its crude to markets, and last month the chief executive of Cenovus called on the provincial government to intervene and institute a production cut as a last resort.
“We’re probably producing about 200,000 or 300,000 barrels per day of oil in excess of our ability to get that oil out of the province, either by pipelines or by rail,” Cenovus’ CEO Alex Pourbaix told Global News at the time.
Not all were on board with the idea, however. “Our position is that government intervention in the market would send the wrong signals to the investment community regarding doing business in Alberta and Canada. And we really do need to take a long-term view and allow the market to operate as it should,” was the statement of peer Suncor.
Premier Notley last week described the situation as “fiscal and economic insanity.” Alberta now has to buy more oil trains—a more dangerous way to transport oil than pipelines—because production is rising inexorably while pipeline capacity remains the same in the face of fierce opposition from environmentalist groups and First Nations against new pipeline projects. The National Energy Board recently said crude oil production in Canada this year will average 4.59 million bpd, up by 22,000 bpd from earlier forecasts.
By Irina Slav for Oilprice.com
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Irina is a writer for Oilprice.com with over a decade of experience writing on the oil and gas industry.