Dire Sit­u­a­tion

Fort McMurray Today - - FRONT PAGE - CLARE CLANCY [email protected]­media.com

Premier Rachel Not­ley an­nounces moves to re­strict oil­sands pro­duc­tion in face of the cur­rent oil price cri­sis at a me­dia con­fer­ence in Ed­mon­ton on De­cem­ber 2, 2018. Al­berta will cut oil pro­duc­tion by 8.7 per cent start­ing in Jan­uary to re­duce the price dif­fer­en­tial fac­ing en­ergy pro­duc­ers. About 25 pro­duc­ers are ex­pected to face cuts.

Al­berta will cut oil pro­duc­tion by 8.7 per cent start­ing in Jan­uary in an ef­fort to re­duce the pun­ish­ing price dif­fer­en­tial plagu­ing en­ergy pro­duc­ers, says Premier Rachel Not­ley.

“We must act im­me­di­ately, and we must do it to­gether,” she said in a speech Sun­day at the Fed­eral Build­ing.

About 25 pro­duc­ers are ex­pected to face cuts un­til the 35 mil­lion bar­rels of oil cur­rently in stor­age are shipped out of the province.

“We have a fairly good sense of what we need to do to clear the mar­ket, and clear stor­age,” Not­ley said, adding the de­ci­sion was “very dif­fi­cult.

“When mar­kets aren’t work­ing … then we have a re­spon­si­bil­ity to act,” she said. “This is a crit­i­cally im­por­tant mat­ter for Canada’s econ­omy, not just Al­berta’s econ­omy.”

The price dif­fer­en­tial be­tween West­ern Cana­dian Se­lect and West Texas In­ter­me­di­ate has fluc­tu­ated in re­cent weeks, peak­ing at around C$45 a bar­rel. West­ern Cana­dian Se­lect was sell­ing for US$17 per bar­rel Fri­day.

Tim Mcmil­lan, pres­i­dent of the Cana­dian As­so­ci­a­tion of Petroleum Pro­duc­ers, said the ac­tions an­nounced Sun­day un­der­score a dire sit­u­a­tion.

“It fur­ther re­in­forces the need for Canada to in­crease ex­ports of our oil and nat­u­ral gas to ex­ist­ing and new mar­kets, which will ul­ti­mately help meet global de­mand and ex­pand our cus­tomer base,” he said in a state­ment.

No in­dus­try con­sen­sus

Pro­duc­ers are mak­ing 190,000 raw crude oil and bi­tu­men bar­rels per day (bpd) more than can be shipped out of Al­berta, said the province. Cuts will ini­tially re­duce the over­sup­ply by 325,000 bpd, but even­tu­ally that num­ber will drop to 95,000 bpd af­ter ex­cess stor­age is dealt with.

The plan, which would end Dec. 31, 2019, is ex­pected to re­duce the dif­fer­en­tial by at least US$4 per bar­rel rel­a­tive to where it would have been oth­er­wise.

Cen­ovus En­ergy Inc. CEO Alex Pour­baix, who has called for gov­ern­ment-man­dated cuts, lauded the news and said “these are not or­di­nary cir­cum­stances.

“The Al­berta gov­ern­ment has lis­tened and re­sponded quickly,” he said in a state­ment. “The mea­sures Premier Not­ley an­nounced to­day will help bal­ance the mar­ket in the short term un­til new rail and pipe­line ca­pac­ity comes on stream late next year and into 2020.”

But not all pro­duc­ers have been on board to cur­tail pro­duc­tion, and Not­ley said no in­dus­try con­sen­sus is ex­pected.

Al­berta’s po­lit­i­cal par­ties did reach con­sen­sus how­ever, with UCP Leader Ja­son Ken­ney and Al­berta Party Leader Stephen Man­del push­ing for cuts be­fore the NDP laid out its plan.

“We’ve got to cut the dif­fer­en­tial in half,” Ken­ney said at a Sun­day news con­fer­ence.

The UCP had pro­posed 10 per cent pro­duc­tion cuts, but Ken­ney said he didn’t want to “quib­ble over the num­bers.”

Man­del said the NDP de­ci­sion was sev­eral months too late.

“It’s about time the pro­vin­cial gov­ern­ment did some­thing,” he said. “The time has come to take re­spon­si­bil­ity for the in­ac­tion by this gov­ern­ment … it’s been frus­trat­ing.”

The province pegs losses due to the oil dis­count at around $80 mil­lion per day, though es­ti­mates vary.

No new leg­is­la­tion re­quired

The province is di­rect­ing the Al­berta En­ergy Reg­u­la­tor (AER) to launch the sys­tem of cur­tail­ment through ex­ist­ing leg­is­la­tion. The min­is­ter of en­ergy will have author­ity to set monthly lev­els through a cab­i­net or­der.

Cuts will be de­ter­mined on an op­er­a­tor ba­sis, not by well or project. The base­line will be cal­cu­lated by av­er­ag­ing the six months of high­est pro­duc­tion level over the past year for each com­pany.

The first 10,000 bpd for each com­pany will be ex­cluded, said the province.

Ken­ney said he’s con­cerned that ex­emp­tion level will still hurt small pro­duc­ers. The UCP had sug­gested a higher thresh­old, lim­it­ing cuts to pro­duc­ers mak­ing more than 25,000 bpd.

He also said he be­lieves the move will pre­vent job losses.

“A con­tin­ued $40 price dif­fer­en­tial will po­ten­tially re­sult in tens of thou­sands of lay­offs,” he said.

Crude-by-rail to ship out 120,000 bpd in 2020

On Wed­nes­day, Not­ley an­nounced Al­berta would in­crease crude-by-rail ca­pac­ity by an ad­di­tional 120,000 bdp, start­ing in late 2019. The full com­ple­ment of rail cars would ship out in 2020.

Crude-by-rail ship­ments al­ready in­creased to a record in Septem­ber — nearly 270,000 bpd — but the dif­fer­en­tial con­tin­ued to grow.

Not­ley, who ap­pointed three en­voys tasked with ex­am­in­ing short-term so­lu­tions, was in Ot­tawa and Toronto where she slammed the fed­eral gov­ern­ment for fail­ing to take ac­tion.

Al­berta had asked Prime Min­is­ter Justin Trudeau to boost rail ca­pac­ity to pro­vide relief, but the fed­eral fi­nance min­is­ter hinted that Ot­tawa was lean­ing away from that op­tion.

Trudeau’s most re­cent visit to Cal­gary Nov. 22 spurred a pro-oil rally in the city’s down­town.

Nat­u­ral Re­sources Min­is­ter Amar­jeet Sohi said Sun­day that Ot­tawa shared Al­berta’s frus­tra­tion on the price dis­count.

“The sta­tus quo can­not con­tinue,” he said in a state­ment. “The fact is, our gov­ern­ment in­her­ited a flawed sys­tem that led to projects go­ing be­fore the courts rather than get­ting shov­els in the ground.

“Our gov­ern­ment has been tak­ing steps since Day 1 to en­sure that good projects can move ahead by mak­ing the is­sue of mar­ket ac­cess a pri­or­ity.”

The province said oil pro­duc­tion cuts will add an es­ti­mated $1.1 bil­lion to Al­berta gov­ern­ment rev­enue in 2019-20.

ED KAISER/POST­MEDIA NET­WORK

THE CANA­DIAN PRESS/JA­SON FRANSON

Premier Rachel Not­ley speaks dur­ing an an­nounce­ment of a manda­tory cut in oil pro­duc­tion to deal with a price cri­sis that is cost­ing Canada an es­ti­mated $80 mil­lion a day, in Ed­mon­ton on Sun­day, Dec. 2, 2018.

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