Premier Rachel Notley is ordering Alberta’s oil industry to cut production by 8.7 per cent, saying the measure is needed to end “the economic and fiscal insanity” of selling Albertan crude at steep discounts compared with the North American benchmark.
The glut of oil created by insufficient pipeline capacity to move Albertan oil to world markets threatens the economic wellbeing of the oil-rich province, Notley said in a televised speech on Sunday.
“Owing to decades of inaction by successive federal governments Albertans are unable to transport much of the oil that we produce to market through modern, well-regulated pipelines,” Notley said in her supper-hour address.
“As a result we must sell our oil at a discounted price. In the last few weeks, this price gap has reached historic highs because we’re producing considerably more product than there is transport capacity.”
It is creating a huge backlog and is forcing Alberta to sell its oil at “ridiculously low levels,” Notley said.Listen
While the rest of the world sells its oil at about $50 per barrel, Alberta fetches only $10, she said.
“We are essentially giving our oil away for free.”
Fire-sale prices have led to concerns the oilpatch will have to find savings elsewhere in the coming weeks and months by slashing capital spending or jobs.
Short term measure
Notley said the 8.7 per cent reduction begins in January, with the expectation that figure will gradually decrease until the cuts are scheduled to end on Dec. 31, 2019.
“This is a short term measure,” she said.
In the medium term, the province is buying as many as 80 locomotives and 7,000 rail tankers to move the province’s excess oil to markets, with the first shipments expected in late 2019.
In the long term, the province is working on diversifying Alberta’s energy sector, attracting new investments to process more of the oil in the province instead of shipping only crude oil, Notley said.
The province is also working to resolve the pipeline bottlenecks that have created the current problem, she said.
The Trans-Mountain line to the B.C. coast is now in legal limbo despite being approved two years ago.
The Enbridge Line 3 project, shipping more oil from Alberta to the U.S. Midwest is expected to come online late next year.
Measures suggested by opposition
The Opposition United Conservatives and the centrist Alberta Party had already called for the production cut. Notley thanked them both in her speech.
Opposition United Conservative Leader Jason Kenney said Notley made the right decision.
Alberta Party Leader Stephen Mandel said the government was warned in the spring that this crisis was coming, and should have acted sooner.
Industry feelings prior to the announcement had been mixed.
Cenovus Energy proposed the idea of a production cut last month.
However, Imperial and Husky said Friday they remain opposed to involuntary production cuts.
With files from The Canadian Press