Alberta orders oil production cut to deal with price differential

Alberta cutting back oil production

Alberta orders oil production cut to deal with price differential

Oil prices rose on Monday, buoyed by coordinated production cuts - cuts that did not come from Vienna (although that too could occur later this week). "Perhaps OPEC should therefore consider inviting Canada to its meeting on Friday", Commerzbank said in a note.

Even after that gain, Western Canada Select crude was trading for $29 a barrel less than USA benchmarks.

She said the price gap that is forcing the government action is caused by the federal government's decades-long inability to build pipelines.

Last week, she announced a plan to buy rail cars to help ship an additional 120,000 barrels of crude a day, increasing already-record levels of crude shipped by train by more than 30 percent. The surplus is filling storage up quickly.

The province also expects a deal in the works to purchase its own railcars to transport oil will help with the backlog next year.

Notley told reporters at her announcement that it doesn't matter the size of the oil company, producers big and small will be affected.

The action is created to prevent job cuts by letting companies keep people on because they can "see a light at the end of the tunnel", Notley said at a news conference. The restriction will come into effect in January and will be in place until December 31, 2018.

"Every Albertan owns the energy resources in the ground and we have a duty to defend those resources", said Notley.

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Announcing the measure on Sunday, Premier of Alberta Rachel Notley said that the province is "facing a hard challenge", but the move is aimed to reverse an unprecedented price gap that has seen the province's crude sell for significantly less than the global price. Further reductions in the curtailment are expected in the fall and winter as additional rail capacity comes online.

The reduction will drop to an average of 95,000 barrels a day until curtailment ends at the end of 2019, when Enbridge's new Line 3 pipeline to the U.S. Midwest starts operating.

"This intervention will provide the kind of predictability and stability to industry players to allow them to keep people on because they can see a light at the end of the tunnel and so we are hoping it will have a neutral to positive affect on jobs going forward", said Notley. Any effort to cut output by one company only stands to benefit another.

"My company will have a capital program that looks pretty similar to the program we had past year", Alex Pourbaix said in an interview.

While praising her main opponents in the Alberta legislature, Notley put the blame for the current state of affairs right where most Albertans seem to think it belongs: On the federal government for not approving the pipelines Albertans have now persuaded themselves will solve all their economic problems.

The Calgary-based company noted the exact impact of the mandatory cuts, to be applied by producer rather than per project, will be specified when it issues its 2019 capital and production guidance.

It's worth noting that years of pipeline fights from environmental groups, local communities and First Nations are bearing some fruit.

Canada's Federal Court of Appeal halted the contentious Trans Mountain pipeline expansion that would almost triple the flow of oil from the Alberta oil sands to the Pacific Coast - a setback that came just as the federal government bought the project to help ensure it gets built amid strong environmental and aboriginal opposition in British Columbia. "That's one of the reasons why in the past week we've been giving away our oil".

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