Alberta oil cuts hurting rail economics: Suncor CEO
As a glut of oil in storage grows once again, Suncor Energy Inc. warned Wednesday that oil-by-rail economics are “seriously damaged” because of Alberta’s move to scale back oil production. “I’m guessing that this curtailment will be pulled back quite rapidly to make sure that rail economics can work,” Suncor CEO Steve Williams said on an earnings call. Canadian oil companies need a discount of more than US$15 per barrel for domestic crude relative to U.S. benchmarks to justify the cost of shipping their barrels on railway cars. The discount has fallen below that hurdle since Alberta ordered large companies to scale back production by 325,000 barrels per day in December. Suncor, Canada’s largest oil company by market capitalization, predicted the narrowing discount for Canadian oil and resulting “seriously damaged” rail economics would lead the Alberta government to lift its curtailment order earlier than planned.
The province eased its curtailment order by 75,000 bpd last week, citing a 14-per-cent drop in oil storage levels in the province as evidence the decision to intervene in the market has helped clear a glut of crude in the province. However, new data from energy research firm Genscape, Inc. shows oil storage inventories have been building in the province once again. Alberta’s total oil storage now is at 55 per cent capacity as fewer barrels of crude are leaving the province on railway cars. Imperial Oil Ltd. said last week that it was cutting rail shipments of crude from 168,000 bpd in December to zero this month as a result of the curtailment. Williams said he has advised the Alberta government to “start planning for what we call a soft landing or more of a soft exit” to the curtailment order, which has had a minimal impact on Suncor because of its refining business and access to existing pipelines..