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article imageAlberta Premier Notley announces 8.7 percent oil production cut

By Karen Graham     Dec 2, 2018 in Business
Alberta - Alberta Premier Rachel Notley has announced a temporary 8.7 percent oil production cut, or decrease of 325,000 barrels a day, in the production of raw crude oil and bitumen starting Jan. 1, 2019.
The supply glut has sent prices of Western Canada crude and bitumen plunging, sparking an economic crisis that threatens thousands of jobs, reports The Globe and Mail.
In the announcement Sunday evening, Alberta Premier Rachel Notley said the daily cuts of 8.7 percent will remain in place until the 35 million barrels of processed oil currently in storage is shipped to market, likely by the spring.
The announcement also comes at a time when Notley has laid out a plan to purchase thousands of new rail cars to move oil, a proposal that has yet to get Ottawa’s support. Notley said the current situation is “fiscal and economic insanity” and is creating a cash-flow crisis at energy companies.
She blames the crisis on the federal government's inability to get a new pipeline built. And the premier also says the oil crisis is going to affect the country's economy. The government expects to rollback production to only 95,000 barrels a day in the spring, after the storage tanks begin to empty, reports CTV News Canada.
“In Alberta, we believe that markets are the best way to set prices, but when markets aren’t working, when companies are forced to sell our resources for pennies on the dollar, then we have a responsibility to act, a responsibility to defend our province,” said Ms. Notley.
Notley also notes that getting a pipeline built will take time and right now, the province is looking at short-term solutions - either letting the market sort itself out or by the government stepping in and cutting production. These two options have split the industry over which would be best.
A hard decision to make
The provincial government says it believes the industry will not voluntarily make these cuts after sending three envoys to talk to small and large producers. The Suncor, Imperial and Husky companies have argued to continue production as it is, while Cenovus Energy has been calling on Notley’s government to cap production levels.
"While curtailments have been used before by previous governments, we believe they should only be used for a short period of time, and only in extreme cases,” Alex Pourbaix, the president and chief executive officer of Cenovus Energy, said in a statement following Notley’s announcement. “This is an extreme case.”
Tim McMillan, the president, and chief executive officer of the Canadian Association of Petroleum Producers, said that Notley's cuts "underscore the dire situation" in which the energy industry finds itself and "further reinforces the need for Canada to increase exports of our oil and natural gas to existing and new markets."
Only the largest 25 producers in the province, out of about 335 operators in total, will need to cut production under the plan. If all the companies were forced to curtail production, it could lead to bankruptcies and job losses, she wrote in an op-ed on Friday, according to CBC Canada.
Western Canada Select, Canadian crude, was trading at $15.45 a barrel at the end of the trading day on Friday, marking a sharp gap with the North American benchmark, West Texas Intermediate, which was trading at $52.86 a barrel. Canadian crude has been as low as $10 a barrel in the last couple weeks, essentially selling at "fire-sale" prices.
More about Alberta, oil production cut, Premeir Rachel Notley, price differential, 87 percent
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