Saying it is responding “to the historically high oil price differential that is costing the [Canadian] economy more than $80 million/day,” the Alberta government on Dec. 2 announced a curtailment in oil production beginning Jan. 1.
It will require every operator to trim output of more than 10,000 b/d by 8.7% from its highest 6 months of production over the past 12 months.
The Alberta Energy Regulator will regulate the curtailment.
The provincial government said it wants to cut production by 325,000 b/d “until we have enough shipping space to clear the current glut and improve prices. This is expected to take 3 months.”
Curtailment then will be eased “to a point where production is balanced with export capacity—a reduction of about 95,000 b/d on average through the rest of 2019,” it said. The curtailment is to end at yearend 2019.
The government said Alberta now produces 190,000 b/d more raw crude oil and bitumen than can be shipped by pipelines, railways, or other means.
Oil in storage is at record highs and approaching capacity.
The congestion has widened the discount of Western Canadian Select crude against West Texas Intermediate crude to $30-50/bbl recently (OGJ Online, May 8, 2018). The spread peaked at $52/bbl in October.
The government expects production curtailment to trim the differential by at least $4/bbl relative to inaction and to raise royalty income of the province by $1.1 billion during fiscal 2019-20.
“The price gap is caused by the federal government’s decades-long inability to build pipelines,” the provincial government said in a press statement. “Ottawa’s failure in this area has left Alberta’s energy producers with few options to move their products, resulting in serious risks for the energy industry and Alberta jobs.”