Alberta government will decrease oil production by 325,000 barrels per day in 2019
The Notley government has announced that it will enforce a mandatory reduction in the amount of oil produced in the province in order to close the price gap that’s costing the economy $80M every day.
The premier made the announced in Edmonton on Sunday, adding that the federal government was to blame for the high oil price differential that has driven the price of Alberta crude to nearly $45 below the world price for oil.
Under current conditions, Alberta is producing 190,000 barrels of crude oil and bitumen per day over what can be currently shipped out using pipeline, rail and other means.
With the change, the government will reduce production by 325,000 barrels per day, or roughly 8.7 percent, to address the excess storage issue and then the reduction will drop to 95,000 barrels per day until December 31, 2019.
"We must clear the backlog and keep it clear to get our oil to market one way or another," Notley said. "As I speak, many companies face a cash-flow crisis that threatens thousands of jobs. That's not acceptable to me."
She says that the reduction of production is only a short-term solution.
"Over the course of the year, the curtailment amount will drop. This is being done through regulation and ministerial order. We will review the amount every month and adjust as needed."
The government says that this action will help to reduce volatility and narrow the differential by at least $4 per barrel and add an estimated $1.1B to the economy.
"We have a responsibility to act. We have responsibility to defend our province and defend our resources. By spreading the curtailment among all producers, industry and investors can be assured that it is short-term and will decrease while the price per barrel slowly recovers. As such, jobs will be protected."
The reductions will be implemented starting January 1, 2019 and the reduction amount will be reviewed every month to ensure balance between transportation and storage capacity.
There will be an exemption for the first 10,000 barrels of oil produced, a measure that is intended to protect some smaller companies working in the province.
Notley previously announced that the province would be acquiring 7,000 rail cars to help transport oil. That rail capacity will begin to come online sometime in 2019.
Lori Williams, political scientist with Mount Royal University, says that the reduction in production in Alberta will make things better, but it won't solve the problem.
"We're really looking this carefully, adjusting as time goes on. We may see that they're successful in decreasing the differential more significantly as we adjust to what the impact actually is. I think that the levers available are pretty limited and so they also have to consider small producers and some producers who oppose this. I think she is trying to strike a workable middle ground."
She says that a lot of the frustration that Notley has with the federal government shone through the speech on Sunday.
"She's putting some distance between herself and Ottawa, particularly between herself and Justin Trudeau, saying 'look, I've been working on this across the country'. She has worked hard and she has made a difference in terms of support for pipelines across the country and she's using that partly to put pressure on the federal government."
Notley is taking the reduction as a response to a crisis, Willliams says, one that isn't only affecting Alberta, but the entire country.
She adds that the curtailment of oil production in Alberta isn't something new either.
"We've seen this reduction in production for the sake of Alberta's natural resources and Alberta's economic interests before under Peter Lougheed. So it follows a precedent rather than setting one," Williams says. "I think that's why there's a fair bit of support. We are recognizing that there are going to be some unpredictable consequences and they are going to try and monitor it closely."
There are currently about 35M barrels of oil in storage, twice the normal levels.