Alberta has extended its production cuts through 2020, saying pipeline delays threaten to exceed takeaway capacity by about 150,000 b/d.
“By more closely aligning production with takeaway capacity, curtailment is expected to help prevent extreme widening of the light-heavy differential,” said Alberta Energy Minister Sonya Savage, adding that Canadian crude oil prices are likely to drop without the production cuts.
The curtailment program, rescheduled to last until Dec. 31, 2020, had been scheduled to end on the last day of this year.
Enbridge Inc.’s expansion of the Line 3 pipeline was expected to be online by late this year, but the project was set back about a year because of permitting delays in Minnesota, leaving Alberta’s oil production higher than available transportation to refineries.
Litigation also has slowed TC Energy Corp.’s planned Keystone XL pipeline and the Canadian government’s expansion of the Trans Mountain pipeline.
Oil oversupply
Alberta officials said increasing the base limit for curtailment to 20,000 b/d from 10,000 b/d will mean that only 16 of more than 300 producers will be subject to the updated production limits.
This will allow small producers to increase investment and production without significantly reducing overall Alberta oil production. The changes become effective in October, the government said.
Alberta officials noted that early termination is possible for ending the Dec. 31, 2020, curtailment.
Benny Wong, Morgan Stanley equity analyst, said he expects relatively stable and range-bound Canadian oil prices for the next few months.
“This should support attractive cash-return programs,” for producers, Wong said. He said the curtailment extension provides incremental encouragement that oil price differentials will stay relatively attractive into 2020.
He compared Canadian oil prices with Brent oil prices and US light, sweet crude oil prices, saying Alberta’s government has flexibility to defend differentials.
“We are waiting for clarity around Alberta’s divestiture of its rail contracts in early fall,” Wong said, adding the curtailment program is not a long-term way to resolve take-away capacity constraints.
Contact Paula Dittrick at [email protected].
