Suncor says oil cuts reduce desire to build refineries
C A LG A RY The forced curtailment of oil production in Alberta will make it less likely for companies to invest in new refineries in the province, Suncor Energy Inc. said Friday.
Suncor said the Alberta government’s decision to force producers to cut back their output by 8.7 per cent has resulted in “winners and losers” in the province. The company, the largest integrated producer in Canada, is also discussing “unintended consequences” with the province and seeking some relief from the order.
“In the short term, the Government of Alberta action has resulted in winners and losers in the market, shutting in valuable upgrading throughput and has made transporting crude oil out of the province by rail uneconomic,” the Calgary-based operator said.
Suncor did not specifically identify itself among the “losers” in the situation, but it did — along with Husky Energy Inc. and Imperial Oil Ltd. — oppose the curtailment and on Friday said it will need to shut-in more than 8.7 per cent of its production. The company did not provide a figure for how much of its output it is required to curtail.
Despite the order, Suncor has said it intends to boost its average oil production by 10 per cent over the course of the next year.
“The Government of Alberta intervention creates long-term market uncertainty, and reduces any incentive for market participants to invest in crude oil processing facilities or commit to long-term transportation agreements,” the company said, adding the order would also result in companies “shutting in valuable upgrading throughput.”
Suncor’s announcement comes on the heels of Alberta Premier Rachel Notley’s call this week for proposals for new refinery projects in the province. Notley issued her government’s curtailment order this month amid record-setting US$40 per barrel and US$50 per barrel discounts for Alberta heavy crude oil, relative to the West Texas Intermediate benchmark.
The order has since helped narrow the differential to about US$12.50, and boosted share prices of domestic companies that are exposed to the benchmark price. Suncor, Imperial and Husky operate refineries, however, which had insulated them from the discounts.
Suncor has much to lose from the output cuts as it operates oilsands upgraders near Fort McMurray, Alta. as well as refineries in Alberta, Ontario, Quebec and Colorado.
“We feel that we upgrade or refine about 70 per cent of our production in Alberta already and the disproportionate allocation has idled some of that upgrading capacity and that hasn’t addressed the issue which is market access,” Suncor spokesperson Sneh Seetal said.
She declined to directly discuss the provincial government’s call for refinery proposals.
Seetal said the curtailment order could have several “unintended consequences” and as sites operate at less than their designed capacity, there are safety concerns about potential heat loss and freezing. The company is taking steps to mitigate any potential safety risks and is in talks with the Alberta government.
Suncor is also discussing other potential consequences with the provincial government and the Alberta Energy Regulator as the curtailment order failed to take into account how a forced production cut would affect oil that is refined and upgraded in Alberta and its inhouse production and consumption of diesel as oil consumed at its own operations.
Those factors don’t affect the volumes on clogged pipelines leaving Alberta, which were the root cause of the massive price discounts, the company said.