Suncor calls for early end to oil cuts amid rail woes
Alberta’s program has worked too well on prices, CEO says
CALGARY— Suncor Energy Inc. is calling on the Alberta government to make an earlier-than-planned exit from the oil curtailment program it enacted on Jan.1 because of its “unintended consequences.”
The program designed to draw down crude storage levels and free up space on export pipelines has worked too well, reducing local price discounts to the point that shipping crude by rail into the United States is no longer financially sustainable, said CEO Steve Williams on a conference call Wednesday morning.
“If you look at what’s happened, the differential corrected — and overcorrected — very quickly and the unintended consequence of that is ... rail economics are severely damaged and a lot of the rail movements are stopping or have stopped,” Williams said.
“That’s going to have the opposite impact to what the government wants.”
The same charge was levelled last week by Imperial Oil Ltd. CEO Rich Kruger, who said his firm would cut crude-byrail shipments from its Edmonton-area terminal to near zero this month.
The move is seen as a major setback for oil egress as Imperial shipped 168,000 barrels per day in December, an amount it said accounted for about half of Canada’s total rail exports.
On a conference call to discuss Suncor’s fourth-quarter results, Williams said the production cuts are also having a longer-term negative affect on investor confidence in Canada.
The criticism came as Suncor reported a $280-million net loss in the fourth quarter of 2018, in part due to the very price discounts the curtailments are
designed to reduce. It added, however, that lower-priced feedstock resulted in better profit margins at its refineries.
The Calgary-based company said its average realized price in Canadian dollars for raw bitumen in the quarter was just $7.96 per barrel, versus $42.80 in the fourth quarter of 2017. Its average realized price for upgraded synthetic crude was $46.07, compared with $70.55.
Alberta Premier Rachel Notley said last week the province would reduce the initial 325,000-bpd production curtailment by 75,000 bpd, citing levels of storage that have fallen faster than expected.
“Our goal is and always has been to match production levels to what can be shipped using existing pipeline and rail capacity, while encouraging a reduction in storage levels,” said Mike McKinnon, spokesperson for Energy Minister Marg McCuaig-Boyd, in an email.
“Last week we eased oil production limits ahead of schedule and we will continue to monitor this closely and adjust as necessary. We expect the differential to settle at a more sustainable level and we continue moving forward with long-term solutions like our investment in rail and our continued fight for pipelines.”
The province plans to bring in further reductions to take the curtailments to 95,000 bpd through the end of 2019 once storage levels have fallen enough. The difference in price between Western Canadian Select bitumen-blend oil and New York benchmark West Texas Intermediate widened to as much as $52 (U.S.) per barrel in October, but shrunk to single digits in December and January.