Alberta’s oil cut quotas are expected to end in December, nearly two years after the previous NDP government introduced them to support oil prices, the UCP government said on Friday.
The cuts, reset monthly, are no longer needed as 16% of Alberta’s crude oil production is offline, up from 22% at the start of the COVID-19 pandemic, the government said in a press release .
He added that he would retain the regulatory authority to reintroduce the measures if necessary in 2021.
“Maintaining the stability and predictability of Alberta’s resource sector is vital to investor confidence as we navigate the economic conditions brought on by the pandemic, the commodity price crisis and the need to pipelines, ”Energy Minister Sonya Savage said.
“This targeted approach serves as an insurance policy because it will allow Alberta to react quickly if there is a risk that the storage will reach its maximum capacity while still allowing the industry to produce within the expected free market. ”
The province quoted Genscape as noting that there were about 20 million barrels of oil in stock as of Oct. 16, up from nearly 40 million when the reduction program began.
High inventory levels are blamed on the inability of the pipeline system to match increasing levels of oil production in the province, primarily from new and expanded oil sands projects.
The program has been controversial from the start, with oil producers like Cenovus Energy Inc. broadly supporting it, while oil producers who also own refining operations, like Imperial Oil Ltd., have been adamantly opposed.
“We have always maintained that a market-based approach is best and we support the government’s decision to end the current program,” Husky Energy Inc. spokesperson Dawn Delaney said on Friday.
In a report, RBC analyst Greg Pardy said the end of the program was beneficial for producers such as Cenovus, Suncor Energy Inc., Canadian Natural Resources Ltd. and others who have been forced to curb production at their facilities.
Suncor, for example, was unable to maintain full production at its Fort Hills oil sands mine after increasing its capacity to 194,000 barrels per day in 2018. Earlier this year, it shut down the one of its two extraction trains due to low oil prices.
However, a rebound in production could lead to a widening of the discount on the price of Western Canadian crude relative to US benchmarks, Pardy warned, noting that the decline in oil sands production so far this year reduced Western Canadian Select’s oil rebate.
The province’s authorized production quota was gradually increased from 3.56 million barrels per day in January 2019 to 3.81 million b / d by year-end, a level maintained in the first 11 months from 2020.
The province says production was in fact 3.1 million bpd in August and is not expected to exceed export capacity until mid-2021.
The government’s decision to stop the program makes sense given the impact of the COVID-19 pandemic on the oil market, said Ben Brunnen, vice president of fiscal and economic policy for the Canadian Association of Petroleum Producers .
“This now allows companies to make decisions from a production perspective based on market fundamentals rather than government-imposed limits,” he said.
But he added that it was unfortunate that the government felt compelled to intervene in the market in the first place.
“CAPP supports transparent and unrestricted market access to ensure that all of Alberta’s oil production is delivered to desired markets at market-clearing prices,” he said.
The government says it has extended what was supposed to be a short-term measure due to continued delays in pipeline projects that would increase the province’s export capacity.
Pardy said the completion of pipelines, including Keystone XL, the Trans Mountain expansion and Enbridge’s Line 3 “should improve the province’s ongoing ability to balance production and takeout capacity, thus helping to ensure that Alberta’s resources are exported to their full value ”.