Alberta will mandate an 8.7% reduction in oil production volumes, or 325,000 barrels per day, in the hope of driving up the price of the crude oil and tar sands/oil sands bitumen it sells into world markets, Premier Rachel Notley announced late Sunday.
The cuts will take effect January 1 and remain in place until the province clears a backlog of about 35 million barrels of processed oil that fossils are currently holding in storage. After that, the curtailment will shrink to an average 95,000 barrels per day until the end of next year, when Enbridge’s Line 3 pipeline replacement is expected to go online.
“Alberta’s energy minister has power under existing legislation to set the curtailment amounts through a monthly ministerial order,” CBC reports. “The government said it believed industry would not voluntarily make the cuts after sending three envoys to talk to small and large producers.”
The province had faced a price gap against benchmark West Texas Intermediate (WTI) crude oil as high as US$50 per barrel. CBC says the differential stood at $28.50 when markets closed Friday. While Alberta fossils and the provincial government have complained bitterly about limited pipeline capacity as the root of their pricing woes, more measured analysis has pointed to volatile world oil prices and the inferior quality of tar sands/oil sands bitumen as more significant factors.
Alberta expects yesterday’s announcement to raise the price of Western Canadian Select (WCS) crude by about $4 per barrel and bring it $1.1 billion in new revenue this year. The cutback won’t affect smaller fossils that extract less than 10,000 barrels per day, and the province’s 25 larger crude and tar sands/oil sands producers will have their first 10,000 barrels per day exempted.
Notley’s decision meant picking winners and losers among Alberta’s most colossal fossils, some of which supported a mandatory production cut and some of which vehemently opposed it. The split played out in the reactions that followed her announcement.
Cenovus Energy CEO and President Alex Pourbaix called the move an “acknowledgement of the severity of the crisis facing our industry,” adding that his company “advocated for this mandatory production cut because we continue to believe it is the only short-term solution to the extraordinary situation Alberta finds itself in.” Rich Kruger, CEO of ExxonMobil subsidiary Imperial Oil, said he “respectfully disagreed” with the move.
“This intervention appears not to recognize the investment decisions companies have made to access higher value markets,” he said in a prepared statement. “Imperial has increased its take-away ability by securing contractual capacity in existing pipelines and by investing in extensive rail infrastructure that allows the company to reach higher-value markets, to the benefit of all Albertans.”
Notley’s statement capped a whirlwind series of releases in which her government unveiled an additional C$1.1 billion for petrochemical development, offered oil drillers a new break on the carbon taxes they would otherwise have to pay, announced that it was reviewing six proposals for a $1-billion tar sands/oil sands upgrading fund, and said it would buy a fleet of rail tanker cars to move 120,000 more barrels of oil per day to market. Days after that latter announcement, CBC revealed a Transport Canada memo that warned of exhausted train crews and the safety risk they could represent.
The May, 2018 missive concluded that federal work rules for rail operators, first adopted in 2002, “are not effective in preventing fatigue due to work schedules and do not adequately mitigate the risks of fatigue,” adding that most of the approaches to managing fatigue fall outside the regulator’s control.
After a runaway oil train incinerated downtown Lac-Mégantic, Quebec in July 2013, killing 47 people, the federal Transportation Safety Board concluded that the solo operator “had been awake for over 17 hours when he parked the train, and that fatigue undermined his judgment in dealing with a troublesome locomotive,” CBC notes. The new memo “says current regulations on mandatory work-rest periods in the rail industry fail to account for major advances in the science of fatigue over the last 15 years.”