Alberta announces short-term oil production cuts to address price differential

By Charles Lefebvre
December 2, 2018 - 6:35pm

EDMONTON, AB — The provincial government is implementing a short-term reduction in oil production beginning in 2019 in an effort to address the oil price differential that’s affecting Alberta.

Premier Rachel Notley announced the province will cut oil production by 8.7 per cent starting on January 1 in an attempt to help stabilize the oil market and help close the differential.

 

The premier hinted at the plan during an op-ed published on Friday. 

“Every Albertan owns the energy resources in the ground, and we have a duty to defend those resources. But right now, they’re being sold for pennies on the dollar” said Notley in a news release. “We must act immediately, and we must do it together. I can’t promise the coming weeks and months will be easy, but I can promise we will never back down in our fight to protect jobs and the resources owned by all Albertans. I will never stop fighting for Alberta.”

Starting January 1, production of raw crude oil and bitumen will be reduced by 325,000 barrels per day to address the current storage glut of 35 million barrels. The reduction is expected to narrow the differential by at least $4 per barrel, and would add an estimated $1.1 billion in Alberta government royalties in the 2019-20 fiscal year.

After the excess amount of storage is moved, the reduction will drop to an estimated average of 95,000 barrels per day. The oil reduction will be applied at the operator level to both oil sands and conventional producers, and the reduction amount will be reviewed each month. The reduction will run until December 31, 2019.

A short-term production curtailment was a plan put forward by both United Conservative Party leader Jason Kenney and Alberta Party leader Stephen Mandel.

By the end of the year, Enbridge’s Line 3 is expected to come online. Earlier this week, Notley also announced Alberta is planning to purchase more rail cars to help move oil in the province, which is also scheduled to begin by the end of 2019.

The province, according to a release, is producing 190,000 raw crude oil and bitumen barrels per day more than can be shipped by pipelines, rail or other means.

Notley adds the provincial government is continuing to advocate for pipelines to help move Alberta oil.

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