Sask. not following Alberta in cutting oil production

Sask. not following Alberta in cutting oil production

Premier Rachel Notley is ordering a mandatory cut to oil production to deal with a price crisis she says threatens to gut Alberta's bedrock industry.

Cutting production: The province has ordered the output of raw crude oil and bitumen to be reduced by 8.7 per cent, or 325,000 barrels per day, starting in January.

Western Canadian Select's discount to WTI expanded to US$50 a barrel last month, the widest spread in more than a decade, amid pipeline bottlenecks and reduced demand from USA refineries undergoing maintenance.

Global oil giants like the U.S., Russian Federation and Saudi Arabia that command the attention of traders had some unexpected company on Sunday: a province of less than 5 million people in Western Canada.

"Alberta is now producing 190,000 raw crude oil and bitumen barrels per day more than can be shipped by pipelines, rail or other means".

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 hope is that by forcing oil companies to cut production, it will ease the regional oversupply that has put significant pressure on prices.

Notley said it will be a short-term solution created to be monitored and adjusted monthly as necessary.

More broadly, the slide in USA oil followed a tumble in global stock markets on Tuesday, with investors anxious about the threat of a widespread economic slowdown. She said it means Alberta is losing $80 million per day.

"That said, we understand the actions being taken in Alberta and will be working with our industry partners to ensure Saskatchewan is not undermining these efforts".

Already, Canadian oil producers including Canadian Natural Resources Ltd. and Cenovus Energy Inc. announced that they had curtailed output.

Grant Fagerheim is the president and CEO of Whitecap Resources Inc. which does work in Alberta but has 60 per cent of its production in Saskatchewan.

Western Canadian Select prices averaged $44.45 during the 10 months to the end of October although this was due to prices having spent some time around $70 before hogging the $50 level for much of the rest of the time.

Producers' stocks naturally reflected the good news, and there may be more on the way if OPEC agrees to a production cut tomorrow in Vienna.

"Many of these policies (were) supported either by acquiescence or actively by the NDP government", said Kenney. The UCP had suggested a higher threshold, limiting cuts to producers making more than 25,000 bpd.

The move is expected to raise the price of Canadian crude by at least $4 per barrel and add around $1.1 billion to Alberta government revenues in 2019-2020. "The fact is, our government inherited a flawed system that led to projects going before the courts rather than getting shovels in the ground".

"We've got to cut the differential in half", Kenney said at a Sunday news conference.

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.

Most of that would come from producers that don't even produce the heavy oil affected by the differentials in question.