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On a high wire act
Alberta struggles with oil production cuts while it awaits new pipeline capacity Gary Park for Petroleum News
The Alberta government continues its juggling of production cuts and delays in pipeline expansions, while it endeavors to ease the challenges faced by producers.
In the latest move, Energy Minister Sonya Savage said the controversial mandatory curtailments will be extended by an extra year through 2020, adding an apologetic note to her announcement.
“I am the very last person who wants to see curtailment continue, but under the current context it’s necessary,” she told reporters.
“We have to do this in the short term, because we don’t have the capacity to move production.”
Savage said the extension stems from delays in pipeline approvals, notably Enbridge’s Line 3 replacement, meaning production levels could exceed rail and pipe capacity by 150,000 barrels per day.
She said there could be a return to widening price discounts between West Texas Intermediate crude and Western Canada Select heavy crude unless the government prolonged the curtailments, which were first imposed in January when 29 producers were ordered to trim their volumes by 9%, or 325,000 bpd, to 3.65 million bpd.
However, the government said it will raise the exemption in the curtailment formula for all producers to 20,000 bpd from 10,000 bpd, which means the curtailment program will affect only 16 of Alberta’s 300 producers.
In October, output will rise slightly to 3.79 million bpd from 3.76 million bpd in September, Savage said.
She also said the curtailment might be lifted earlier than the end of 2020, depending on market conditions, but the extension will give the government greater flexibility.
Some see advantages Tristan Goodman, president of the Explorers and Producers Association of Canada, speaking for mid- to small-range producers, was pleased with the extension of the curtailment deadline.
He said it will give certainty to producers while protecting the government’s interests.
“It’s a difficult balancing act and the government has tried the best it can to hit that in a positive way,” Goodman said.
For now, the government does not want to choke back production by more than is deemed necessary, nor to make the price gap so tight that companies stop shipping oil to market by rail, which happened earlier this year.
Kevin Birn, an oil analyst with IHS Markit, told the Calgary Herald that the decisions are “incredibly difficult (as the government) tries to find the sweet spot on the pricing side. The other side is what will happen (to oil patch) investments.”
Others in opposition From the outset, Suncor Energy, Husky Energy and Imperial Oil opposed the curtailment program which they argued interfered with an open energy market.
Suncor and Canadian Natural Resources urged the government in July to loosen the restraints on production as increased rail capacity became available, while Suncor and Cenovus Energy want the province to let producers raise their production above curtailment levels if they add incremental crude-by-rail capacity.
Savage said she had not rejected that option, although she was not ready to make a decision.
She said it was her intention to announce monthly revisions to curtailment levels 60 days in advance, instead of the previous 30 days, giving producers a better chance to plan.
A spokesman for the Canadian Association of Petroleum Producers said extending curtailment is “absolutely limiting any growth investment plans.”
Jackie Forrest, senior director with ARC Energy Research Institute, said that introducing a policy that would provide incentive to carry more crude by rail “would be positive,” ensuring that the highest possible price for crude was secured, along with the highest volumes.
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