Wednesday, 19 December, 2018

Alberta’s oil cuts could hit light oil producers, rail shipments

A processing unit at Suncor Fort Hills facility in Fort Mc Murray Alta on Monday A processing unit at Suncor Fort Hills facility in Fort Mc Murray Alta on Monday
Nellie Chapman | 06 December, 2018, 09:40

Alex Pourbaix, chief executive officer of oil-sands producer Cenovus, which may have to shut in about 35,000 barrels a day of production, said the industry is not happy to have the government so involved in the industry but realized that the curtailment plan was the only way to avoid "disaster".

Alberta Premier Rachel Notley announced the production cuts "in response to the historically high oil price differential that is costing the national economy more than $80 million per day", her office said in a statement.

Western Canadian Select, or WCS, has been trading at a discount of more than $40 a barrel to the USA oil price benchmark, WTI, because the country is now producing 190,000 barrels per day (BPD) more oil than its pipeline system can handle. Western Canada Select (WCS) has plunged below $15 per barrel, representing a discount to WTI that has hovered at around $40 per barrel.

Kenney said that not all of Saskatchewan's oil production would be affected. This is a short-term measure, " Notley said on Sunday.

That figure is expected to shrink as the glut of oil in storage is reduced.

Oil prices rose on Monday, buoyed by coordinated production cuts - cuts that did not come from Vienna (although that too could occur later this week). Pipeline News obtained recent data from the Ministry of Energy and Resources listing the top 20 oil producers in Saskatchewan, based on January to October production.

The plan, which would end December 31, 2019, is expected to reduce the differential by at least US$4 per barrel relative to where it would have been otherwise. Notley's challenger in next year's election for premier is now trumpeting his support for mandatory production cuts. We may see that they're successful in decreasing the differential more significantly as we adjust to what the impact actually is.

- Canadian Dollar rises broadly as oil markets rebound on Monday.

He said Notley's decision was courageous given the lack of consensus among industry players over whether the province should intervene.

Moe said the province will continue to advocate for the federal government to create a long-term solution by building pipelines so both provinces can "sell our oil for what it is worth".

Energy Minister Marg McCuaig-Boyd said if Saskatchewan had chose to curtail oil, it wouldn't have changed Alberta's path forward.

Enbridge's Line 3 replacement project is expected to be completed at the end of 2019, which will offer the first significant increase in takeaway capacity.

Share prices of Canadian companies that drill condensate, a light oil used for blending with heavy Canadian crude, hit multiyear lows on Tuesday, as demand is likely to fall as a result of the cuts, BMO Capital Markets analyst Randy Ollenberger said in a note. "We will review the amount every month and adjust as needed". "We are recognizing that there are going to be some unpredictable consequences and they are going to try and monitor it closely".

While praising her main opponents in the Alberta legislature, Notley put the blame for the current state of affairs right where most Albertans seem to think it belongs: On the federal government for not approving the pipelines Albertans have now persuaded themselves will solve all their economic problems.