Alberta orders 8.7 per cent oil production cut to help deal with low prices

Alberta orders 8.7 per cent oil production cut to help deal with low prices

EDMONTON — Alberta Premier Rachel Notley is ordering a mandatory cut in oil production to deal with a price crisis that she says is costing Canada an estimated $80 million a day.

Notley says as of January there will be an 8.7 per cent reduction ordered in oil production.

Output of raw crude oil and bitumen will be reduced by 325,000 barrels per day. That figure is expected to shrink as a glut of oil in storage is reduced.

The mandated cut ends on Dec. 31, 2019 and will be spread among all producers in an effort to stave off massive job losses.

Notley says the action is necessary to reverse the widening price differential that she said could cause further harm to Alberta’s economy if not addressed immediately.

Alberta’s oil is selling at markedly lower rates compared with the North American benchmark, due in part to oil pipeline bottlenecks.

“In the last few weeks, this price gap has reached historic highs because we are producing considerably more product than there is transport capacity,” Notley said in a speech timed to run live on supper-hour newscasts in Alberta.

“This is creating a huge backlog and forcing the price of our oil to ridiculously low levels…. We are essentially giving our oil away for free.”

Roughly speaking, Notley said, while the rest of the world sells its oil at about $50 per barrel, Alberta fetches only $10.

The announcement is expected to narrow the differential by at least $4 per barrel and add an estimated $1.1 billion to government revenues in 2019-2020.

The premier has already said the province will buy as many as 80 locomotives and 7,000 rail tankers — expected to cost hundreds of millions of dollars — to move the province’s excess oil to markets, with the first shipments expected in late 2019.

But she has said that rail cars, along with eventually increasing domestic refining capacity and building new pipelines, won’t bring relief soon enough.

“We must act immediately,” Notley said Sunday.

The Opposition United Conservatives and the centrist Alberta Party had already called for the production cut. Notley thanked them both in her speech.

United Conservative Leader Jason Kenney said he expects prices to stabilize and start bouncing back quickly.

He said he’s more concerned about the job losses that would have occurred without the production cut than any job losses that will come with lower outputs.

“We cannot allow Alberta oil to be shipped out of our country to enrich U.S. refineries when Albertans are getting nothing at all for that asset,” he said Sunday night.

Industry feelings prior to the announcement had been mixed.

Cenovus Energy proposed the idea of a production cut last month. However, Imperial and Husky said Friday they remain opposed to involuntary production cuts.

The move is not unprecedented — in 1980, Tory premier Peter Lougheed forced oil production cuts to protest Pierre Trudeau and his Liberal government’s national energy program.

Federal Conservative Leader Andrew Scheer blamed Justin Trudeau and the current Liberal government’s stance on pipelines for the current situation.

“This has forced Alberta to take matters into its own hands,” Scheer said in a statement.

“Premier Rachel Notley’s drastic and extraordinary announcement this evening lies squarely at the feet of Justin Trudeau.”

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