As expected, Alberta Premier Rachel Notley announced Sunday that her government will order an 8.7-per-cent cut in the province's oil production - 325,000 barrels a day - to squeeze some of the air out of the bitumen price differential that has bedevilled Alberta for several years.
The plan, which would end December 31, 2019, is expected to reduce the differential by at least US$4 per barrel relative to where it would have been otherwise. Despite that, the differential is now expected to cost the province $96 million by the end of the fiscal year.
The production curbs will provide some cushion for producers, but will not eliminate the discount on heavy Canadian oil that has persisted for many years, said Jihad Traya, manager at energy consultancy firm Solomon Associates LLC in Calgary. This is especially true if companies with their own US refining capacity, like Husky Energy Inc., Imperial Oil Ltd. and Suncor Energy Inc., decide to squeeze their own workers till the pips squeak to punish the government for reducing their profit expectations for the greater good.
The discount between Western Canadian Select bitumen-blend oil and New York-traded West Texas Intermediate varied between US$19.75 per barrel and US$22.25 on Monday, an improvement over Friday's US$28.50 settlement price, according to Net Energy.
"Every Albertan owns the energy resources in the ground, and we have a duty to defend those resources", Notley said in a statement.
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Even with the differential costs, Saskatchewan is still coming out ahead because oil prices remain high (resulting in an extra $105 million) and a weaker Canadian dollar works in the government's favour, adding an extra $11 million to provincial coffers. We must act immediately, and we must do it together.
"This is meant to be a short term fix to a very, very long term problem that has been in the making for years and years and years", he said. Notley thanked them both in her speech. Obviously, if you're a small producer the value of that exemption is greater for them than it is for the larger producers. "We need them to step up and help us bring an end to this crisis".
"We've reached out to Saskatchewan and indicated what we are doing", Notley said during Monday's question period, responding to UCP Leader Jason Kenney's call for a united front.
"Investors will definitely worry that this is a slippery slope, and that the government can curtail production or interfere in business to pick winners and losers", Ollenberger said in an interview.
International Brent crude oil futures were down 56 cents, or 0.9 percent, at $61.52 per barrel.
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Executives of upstream oil companies such as Cenovus and Canadian Natural Resources, however, had urged Notley to intervene for weeks, saying they couldn't transfer the oil they were producing without sufficient pipeline space, leading to hundreds of thousands of barrels clogging up warehouses.
A release on the prime minister's website details some of the subjects on the agenda for the First Ministers Meeting, which will gather all of Canada's premiers in Montreal on Friday.
"Actions such as those announced today, underscore the dire situation in which we find ourselves". It's the government being an advocate for the health of the industry.
"These are not ordinary circumstances", reads the statement from the company's president and CEO Alex Pourbaix.
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