EDMONTON—Premier Rachel Notley is ordering a mandatory cut to oil production to deal with a price crisis she says threatens to gut Alberta's bedrock industry.
Notley announced the province will impose across-the-board cuts amounting to 8.7 percent of output to reduce a growing glut of oil that is forcing Alberta oil to sell at steep discounts compared with the North American benchmark.
“In the last few weeks, this price gap has reached historic highs,” Notley noted yesterday in a speech timed to run live on supper-hour newscasts in Alberta.
Roughly speaking, Notley said, while the rest of the world sells its oil at about $50 per barrel, Alberta fetches only $10.
“We are essentially giving our oil away for free.”
Fire-sale prices have led to concerns the oilpatch will have to find savings elsewhere in the coming weeks and months by slashing capital spending or jobs.
Notley said the 8.7 percent reduction begins in January, with the expectation that figure gradually will decrease until the cuts are scheduled to end on Dec. 31, 2019.
“This is a short-term measure,” she stressed.
Output of raw crude oil and bitumen will be reduced initially by 325,000 barrels per day. As the excess storage clears, the reduction is expected to drop to 95,000 barrels a day.
There will be a 10,000-barrel-per-day exemption to ensure small producers are not hurt disproportionately.
The province estimates 25 producers will have to impose cuts.
About 35 million barrels of oil currently are in storage—about twice the normal levels.
The announcement is expected to narrow the differential by at least $4 per barrel and add an estimated $1.1 billion to government revenues in 2019-20.
The move is not unprecedented—in 1980, then-Tory premier Peter Lougheed forced oil production cuts to protest the federal Liberals' national energy program.
The current glut is due, in part, to pipeline bottlenecks.
The Trans-Mountain line to the B.C. coast now is in legal limbo despite being approved two years ago.
Opposition United Conservative leader Jason Kenney said Notley made the right decision.
But he said Notley's government has played a role in creating the problem by not pushing back as the federal government cancelled the Northern Gateway pipeline to B.C. and introduced legislation that industry leaders say will make it more difficult to get oil megaprojects approved.