Pumpjacks pump crude oil near Halkirk, Alta., June 20, 2007. Alberta's UCP government says it will end in December monthly oil curtailment quotas introduced by the previous NDP government at the beginning of 2019 to support oil prices by aligning surging output with static pipeline capacity.THE CANADIAN PRESS/Larry MacDougal

Alberta to stop limits on oil production in December after nearly two years

Alberta to stop limits on oil production in December after nearly two years

CALGARY — Alberta’s oil curtailment quotas are set to end in December, nearly two years after the previous NDP government introduced them as a temporary measure to support oil prices.

The curtailments, reset monthly, are no longer necessary because 16 per cent of Alberta’s crude oil production is off-line, down from 22 per cent at the start of the COVID-19 pandemic, the UCP government announced Friday.

It added it will retain the regulatory authority to reintroduce the measures if necessary in 2021.

“Maintaining the stability and predictability of Alberta’s resource sector is vital for investor confidence as we navigate the economic conditions brought on by the pandemic, the commodity price crisis and the need for pipelines,” said Energy Minister Sonya Savage.

“This purposeful approach serves as an insurance policy, as it will allow Alberta to respond swiftly if there is a risk of storage reaching maximum capacity while enabling industry to produce as the free market intended.”

The province quoted Genscape in noting that there were about 20 million barrels of oil in storage as of Oct. 16, down from nearly 40 million when the curtailment program began.

High inventory levels are blamed on the inability of the pipeline system to match the province’s growing oil production levels, mainly from new and expanded oilsands projects.

The program has been controversial from the start, with oil producers such as Cenovus Energy Inc. largely in favour of it while oil producers that also own refining operations, such as Imperial Oil Ltd. and Suncor Energy Inc., adamantly opposed.

“This is a positive step forward … This will allow markets to work as they are designed to do,” said Suncor CEO Mark Little on Friday.

“Not only is this the most efficient and effective means to balance demand and supply, it also allows producers to appropriately manage and operate their business. Today’s decision contributes to the certainty, stability and simplicity producers need to operate and plan economically in a period of significant volatility.”

Cenovus spokesman Reg Curren pointed out his company has been buying curtailment credits from other companies to produce above its curtailment levels, something it won’t need to do in December.

“We have always maintained that a market-based approach is best and support the government’s move to end the current program,” said Husky Energy Inc. spokeswoman Dawn Delaney.

In a report, RBC analyst Greg Pardy said the end of the program is beneficial for producers including Cenovus, Suncor, Canadian Natural Resources Ltd. and others that have been forced to choke back production at their facilities.

Suncor, for example, has not been able to maintain full production at its Fort Hills oilsands mine after expanding its capacity to 194,000 barrels per day in 2018. Earlier this year, it shut down one of its two extraction trains because of low oil prices.

However, a rebound in production could result in widening of the price discount on western Canadian crude versus U.S. benchmarks, Pardy warned, noting that lower oilsands output so far this year has reduced the discount on Western Canadian Select bitumen-blend oil.

The province’s allowable production quota was gradually raised from 3.56 million barrels per day in January 2019 to 3.81 million bpd by year-end, a level maintained through the first 11 months of 2020.

The province says production was actually 3.1 million bpd in August and it’s not expected to exceed export capacity before mid-2021.

The government’s move to stop the program makes sense given the impact of the COVID-19 pandemic on the oil market, said Ben Brunnen, vice-president of fiscal and economic policy for the Canadian Association of Petroleum Producers.

“This enables companies now to be making decisions from a production perspective based on market fundamentals as opposed to government-mandated limitations,” he said.

But he added it’s unfortunate the government felt obliged to intervene in the market in the first place.

“CAPP supports transparent and unconstrained market access to ensure all of Alberta’s oil production is delivered to desired markets at market clearing prices,” he said.

The government says it extended what was intended to be a short-term measure because of ongoing delays to pipeline projects that would increase the province’s export capacity.

Pardy said the completion of pipelines including Keystone XL, the Trans Mountain expansion, and Enbridge Line 3 “should enhance the province’s permanent ability to balance production and takeaway capacity, helping to ensure Alberta’s resources are exported at full value.”

This report by The Canadian Press was first published Oct. 22, 2020.

Companies in this story: (TSX:CVE, TSX:IMO, TSX:CNQ, TSX:SU, TSX:HSE)

Dan Healing, The Canadian Press

crude oil

Get local stories you won't find anywhere else right to your inbox.
Sign up here

Just Posted

Photo from Town of Sylvan Lake Facebook page
Sylvan Lake communities band together on development plan

Sylvan Lake Intermunicipal Development Plan expected to be approved next spring

Tribe restaurant owner Paul Harris, left, consults with manager Brandon Bouchard about how to proceed under pandemic rules that make it hard for eateries to be profitable. (Contributed photo).
New pandemic rules deemed workable for Red Deer retailers

Stricter COVID-19 reduction measures introduced in lead-up to Christmas

Quentin Lee Strawberry
Man accused in 2019 Red Deer murder will stay behind bars

Quentin Strawberry going to trial next year on second-degree murder charge

Dow Chemicals employees recently volunteered at Habitat for Humanity's Blackfalds project. The federal government announced Wednesday that it is also supporting the affordable housing project. Photo contributed
Habitat for Humanity gets funding for Blackfalds housing project

Habitat for Humanity’s Blackfalds housing project will get some support from the… Continue reading

City of Red Deer Mayor Tara Veer (Advocate file photo).
Veer urges indoor mask wearing immediately

We must protect hospital capacity and each other, says Tara Veer

“This is deadly serious," Alberta’s chief medical officer of health, Dr. Deena Hinshaw, said Wednesday. “I have asked for kindness, but I also ask for firmness." (Photo by Chris Schwarz/Government of Alberta)
Alberta hits ‘tragic milestone’ with more COVID-19 deaths

Province up to 500 COVID-19 deaths, adds 1,265 cases

The Alberta government passed new, stricter COVID-19 measures across the province on Tuesday. THE CANADIAN PRESS/Graham Hughes
Here’s a list of Alberta’s new COVID rules

The Alberta government has provided a list of new COVID-19 measures to… Continue reading

A
Red Deer Games Foundation adjusts grant program due to COVID-19 pandemic

The Red Deer Games Foundation announced Wednesday that it will allow athletes… Continue reading

In this undated photo issued by the University of Oxford, a volunteer is administered the coronavirus vaccine developed by AstraZeneca and Oxford University, in Oxford, England. Pharmaceutical company AstraZeneca said Monday Nov. 23, 2020, that late-stage trials showed its coronavirus vaccine was up to 90% effective, giving public health officials hope they may soon have access to a vaccine that is cheaper and easier to distribute than some of its rivals. (University of Oxford/John Cairns via AP)
POLL: When a COVID-19 vaccine is available, will you get the shot?

When a COVID-19 vaccine is available, will you get the shot?… Continue reading

The tournament was cancelled because of the ongoing COVID-19 pandemic. (Image courtesy of WHL)
2020 WHL Cup cancelled

A tournament featuring the top under 16 male hockey prospects in Western… Continue reading

TORONTO, ON - DECEMBER, 7  - Susan Delacourt
Logo headshots of Toronto Star staff shot in Star studio.
December 7, 2015
Opinion: Don’t blame Trump for vaccine wait

Canadians will be getting COVID-19 vaccinations after Americans, Justin Trudeau has admitted,… Continue reading

QMJHL Roundup: Armada down Olympiques to extend win streak to seven games

QMJHL Roundup: Armada down Olympiques to extend win streak to seven games

Nashville SC ends Toronto FC’s season with stunning 1-0 extra time upset

Nashville SC ends Toronto FC’s season with stunning 1-0 extra time upset

Most Read