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Alberta’s crude oil production cuts, scheduled to last until the end of 2020 could end a month earlier, Premier Jason Kenney said in an interview with Reuters.
“We hope it will end by this time next year at the latest,” Kenney said in Houston where he met with oil industry executives from Chevron, Phillips 66, and oil pipeline operators.
Alberta’s previous government introduced obligatory production caps effective in January this year because of the crippling discount Western Canadian Select was trading at to West Texas Intermediate. At one point, the discount topped $50 per barrel.
Prices immediately rebounded after the introduction of the caps, providing some breathing space for Alberta producers. However, the root problem of the price discount for Canadian crude remained: insufficient pipeline capacity. This led the new government headed by Jason Kenney to announce an extension of the production caps until the end of 2020.
Initially set at 325,000 bpd and only effective for large producers, the caps were relaxed twice already this year. This month, Alberta oil companies can produce 3.8 million bpd of crude, and even more in December, at 3.81 million bpd. However, there is a condition for that higher production: producers have to commit to moving it out of the province by rail.
Canadian energy companies continue to believe that the long-term solution to the country’s oil industry’s woes is the construction of major new pipelines to increase market access, and potentially, to tap new export markets outside the buyer of nearly all Canadian oil exports, the United States.
Yet getting this capacity just became even trickier than before after the Liberals failed to win enough votes at the federal election in October to form a majority government. This means they would need to rely on other leftist parties, which are firmly against any federal support for the oil industry.
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.