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article imageOil sands companies turn down the tap as oil prices remain down

By Karen Graham     Nov 2, 2018 in Business
Alberta - Western Canadian oil is still selling at a steep discount, with prices dipping to new lows on Thursday. With no immediate relief in sight from a collapse in Canadian oil prices, Alberta oil sands companies are beginning to turn down the taps.
One reason for the collapse in oil prices is the backlog of oil in Alberta. The Fort McMurray region has increased production throughout this year and the export pipelines are full.
With a pipeline bottleneck going on - and adding in increased production in the shale formations of the Montney and Duvernay - There is no place in the equation for great profits. Cenovus announced on Wednesday it would cut output by an unspecified amount.
On Thursday, Canadian Natural Resources said they had already started cutting production by up to 15,000 barrels a day, but could increase this amount to 55,000 barrels a day through December, according to CBC Canada.
Right now, many Canadian producers are awaiting the end of the maintenance period at several U.S. refineries that process the heavy oil from Alberta's oilpatch. The refineries should be up and running shortly, but even then, it will be a while before prices begin to rise.
"You're going to have to shut in production at some point in the coming months to balance supply and demand," Jon Morrison with CIBC World Markets, told a recent conference in Calgary.
Construction on Enbridge’s Line 3 Replacement Program began in Hardisty  Alberta on August 3  2017...
Construction on Enbridge’s Line 3 Replacement Program began in Hardisty, Alberta on August 3, 2017.
Enbridge Energy / media
It's not all doom and gloom
Bloomberg is reporting that even with Canadian oil prices in the basement, some companies are still optimistic, including Suncor Energy Inc. and Canadian Natural Resources. Enbridge's Line 3 is scheduled to be expanded and more oil is moving by rail. However, many companies are still cautious and would prefer to cut production for now.
"Demand for these products is coming up,” Steven Williams, Suncor chief executive officer, said in a conference call Thursday. “Rail movements are starting to ratchet up, and of course, we had good news this last week about Line 3 progressing.”
Looking at the long-term, Canadian Natural and Cenovus have signed a multi-year agreement to ship 100,000 barrels a day by rail, while Enbridge’s 370,000 barrel-a-day Line 3 pipeline expansion is scheduled to start operations late next year.
Line 3 should contribute to some “significant easing” of the differentials by the middle of next year, Alex Pourbaix, Cenovus CEO, said on a conference call Wednesday.
One thing is certain - any new oil sands projects are becoming less certain. The heavy oil in the Alberta oilpatch is expensive to get out of the ground and with the continuing shortage of pipelines, many big names are pulling out of the oil sands and looking to greener pastures.
More about Oilsands, turning down the tap, pipeline bottlenecks, Investors, US
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