Alberta Initiates Oil Production Cuts

An excavator loads overburden at the Fort Hills oil sands mining operation. (Photo: Suncor Energy)
The Alberta government has mandated a short-term reduction in oil production that started on January 1. Under the mandate, production of raw crude oil and bitumen will be reduced by 325,000 barrels per day, an 8.7% reduction. Premier Rachel Notley announced the temporary measure in response to the historically high oil price differential that is costing the national economy more than $80 million per day, her office said.

After excess storage is drawn down, the reduction will drop to an estimated average of 95,000 barrels a day until December 31, 2019, when the rules supporting this action will end. Alberta is currently producing 190,000 raw crude oil and bitumen barrels per day more than can be shipped by pipelines, rail or other means. The amount of oil that is being diverted to storage is at record highs and storage is nearing capacity.

“Every Albertan owns the energy resources in the ground, and we have a duty to defend those resources. But right now, they’re being sold for pennies on the dollar,” Premier Notley said. “We must act immediately, and we must do it together.” The price gap is caused by the federal government’s decades-long inability to build pipelines, according to Notley’s office. Her office believes curtailment will reduce volatility, narrow the differential by at least $4 per barrel relative to where it would have been and add an estimated $1.1 billion of government revenue in 2019-2020.

The Alberta Energy Regulator will administer the reduction using the existing Responsible Energy Development Act. The reduction amount will be reviewed each month to make sure production is in balance with transportation and storage capacity. A 10,000 barrel per day exemption will ensure the smallest oil producers are not unduly affected. The level of curtailment for each company will be based off its six months of highest level of production over the past 12 months.

As featured in Womp 2019 Vol 01 -