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Western Canada is producing 365,000 bpd more crude oil that current pipeline capacity can handle, a new report from the National Energy Board has revealed.
According to the authority, as of September this year, Western Canada produced a daily average of 4.30 million barrels of crude, while pipeline capacity stood at 3.95 million barrels per day.
Alberta, the largest oil producer in Canada, has turned to oil trains to offset the pipeline capacity shortage, and last month Premier Rachel Notley announced that the province will buy an additional 120,000 bpd in oil train capacity, to begin operating next year. It will reach full capacity in 2020.
Oil-by-rail shipments are already at a record high: in October, NEB said, these averaged 327,229 barrels per day, up by over 21 percent from the 269,829 barrels per day transported by rail in September. Although some familiar with the industry argue that shipping oil by rail is not as expensive as it may seem at first glance because the heavy Canadian crude does not need as much diluent as it would to be shipped via a pipeline, the current arrangement is not optimal according to the Albertan government.
This prompted Premier Notley to impose obligatory production cuts effective January 2019 and totaling 325,000 bpd until the excess oil in storage is cleared. The cuts will be reviewed on a monthly basis, and once the overhang is gone, they will be reduced to 95,000 bpd, to remain in force until the end of 2018. The glut clearing is estimated to take no more than three months.
Meanwhile, troubled producers are being late with their municipal tax payments and some are even foregoing these payments, which has so far resulted in losses in the tens of millions, according to a report by the Globe and Mail, which has created tensions between the industry and municipalities.
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.