Alberta Amends Oil Curtailment to Pacify Companies
(Bloomberg) -- Alberta is gradually chipping away at its own oil curtailment program to placate energy companies that have grown unhappy with the mandated cuts.
The oil-rich Canadian province amended the curtailment rules on Wednesday to allow some oil sands producers, and companies that pump crude from land with freehold mineral rights, to produce more than their quota. That decision came the same day the provincial government announced it would raise the production limit for March by 75,000 barrels to 3.63 million barrels a day.
The rule changes will exempt “only a few thousand barrels of production,” Michael McKinnon, government spokesman, said in an email. “We anticipate only a small amount of companies will need to use the regulation change.”
The curtailment, announced in early December, was designed to ease a glut caused by a shortage of pipeline space. Since taking effect, the measure has reduced inventories by 5 million barrels, the government said Wednesday.
They also caused local oil prices to surge, with Western Canadian Select falling to a discount of less than $10 a barrel to West Texas Intermediate futures, after the gap narrowed last month from $50 in October. Prices have also been supported by U.S. sanctions on Venezuela that have cut supplies of heavy crude to some U.S. refiners.
The cuts from Alberta and how they are being administered has grown increasingly contentious since taking effect in January. Even Canadian Natural Resources Ltd., a supporter of the reductions, warned service companies it would have to shut its ECHO oil pipeline following a previous rule change in December, according to two people who saw the notice. The government’s decision to ease curtailment will allow the company to continue operating the pipeline that links Western Alberta oil fields to the Hardisty oil hub, Canadian Natural said Friday.
Husky Energy Inc., which opposed curtailment from the start, said the new limits didn’t go far enough.
“It’s a modest step forward, but the bottom line is we’re still going to have to curtail more barrels in February than we did in January,” Mel Duvall, a company spokesman, said in an email.
Imperial Oil Ltd. warned in a conference call on Friday that the curtailment has caused the company to reevaluate its Aspen project that was announced in November and is the first brand-new oil sands project to be kicked off since the 2014 downturn. Shipments out of Imperial’s crude-by-rail terminal are expected to drop to near zero in February after Canadian crude’s discount to futures shrank, the company also said.
The discount of heavy Western Canadian Select’s crude at Hardisty, Alberta, to West Texas Intermediate futures shrank 75 cents on Friday to $10.25 a barrel, data compiled by Bloomberg show.
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