Economy

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

Alberta orders 8.7% oil production cut to help deal with low prices”

The discount on Western Canadian Select to USA benchmark prices widened to US$50 a barrel in October, which Notley says is costing Canada billions of dollars in lost revenue.

The reduction will drop to an average of 95,000 barrels a day until curtailment ends at the end of 2019, when Enbridge's new Line 3 pipeline to the U.S. Midwest starts operating.

Notley blamed the oil price gap on the federal government's failure to build pipelines resulting in the province producing 190,000 raw crude oil and bitumen barrels per day that can not be shipped out. The province estimates 25 producers will have to impose cuts.

And there is no sign whatsoever that any method developed to ship Alberta oil - whether in the form of rail cars, new pipelines or rehabilitated old ones - will not eventually be used to its fullest capacity, with predictable impact on global climate change.

About 35 million barrels of oil are in storage - about twice the normal levels. After three months, production will be cut by 95k bpd through 2019.

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 current glut is due in part to pipeline bottlenecks.

Calgary-based Cenovus climbed as much as 13 percent in Toronto and Canadian Natural Resources gained 16 percent, while Devon Energy Corp., a USA oil company with a presence in Alberta, rose as much as 8 percent in NY.

Saskatchewan Premier Scott Moe said in a statement that the province isn't considering following Alberta's example in cutting oil production.

But he said Notley's government has played a role in creating the problem by not pushing back as the federal government cancelled the Northern Gateway pipeline to B.C. and introduced legislation that industry leaders say will make it more hard to get oil megaprojects approved.

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

It barely took Notley 10 minutes of her live-streamed news conference, which began at 6 p.m., to prove that even in this neoliberal era governments can act, and do so decisively.

"In the last few weeks this price gap has reached historic highs because we are producing considerably more product than there is transport capacity". Small producer Whitecap Resources Inc. now doesn't plan to cut any jobs as a result of the Alberta plan, Chief Executive Officer Grant Fagerheim said in an interview.

Kenney said that not all of Saskatchewan's oil production would be affected. Industry groups and pundits scolded protestors, declaring that the oil would find its way to the market one way or another.

Industry feelings prior to the announcement had been mixed.

The action is created to prevent job cuts by letting companies keep people on because they can "see a light at the end of the tunnel", Notley said at a news conference. However, Imperial and Husky said Friday they remain opposed to involuntary production cuts.



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