One of the large Canadian oil producers, Cenovus Energy (TSX:CVE), is calling upon the government of Alberta to mandate temporary production cuts at all drillers in a bid to ease Canadian bottlenecks that have resulted in Canada’s heavy oil prices tumbling to a record-low discount of US$50 to WTI.
The province of Alberta, the heart of Canada’s oil sands production, has the necessary legislation to have all producers agree to production cuts and it needs to use it now, Cenovus said in an emailed statement to Bloomberg.
“This is an extraordinary situation brought on by extraordinary circumstances,” Cenovus says.
“The government needs to take this immediate temporary action -- which is completely within the law -- to protect the interests of Albertans,” the company’s email to Bloomberg reads.
Western Canadian Select (WCS)—the benchmark price of oil from Canada’s oil sands delivered at Hardisty, Alberta—has dropped to a record low discount of US$50 to WTI in recent weeks, due to rising oil production and not enough pipeline capacity to ship the crude out of Alberta.
Due to the record low heavy oil prices, Cenovus Energy is currently operating its Foster Creek and Christina Lake projects at reduced volumes, it said in its Q3 earnings release. On the earnings call, Cenovus Energy’s President and CEO Alex Pourbaix urged the whole Canadian industry to slow down production to ease bottlenecks.
“And I want to be clear on this, the industry right now has a production problem. We’re going to do our part but we are not going to carry the industry on our back. I think this is something that has to be dealt with on an industry wide basis,” Pourbaix said.
Alberta’s Energy Department spokesman Mike McKinnon told Bloomberg in an email, responding to Cenovus’s call for province-wide production cuts:
“The oil price differential right now is absurd, and exactly why Premier Rachel Notley is fighting to build new pipelines and pushing Ottawa to step up and help fix the backlog in rail shipments.”
The Canadian Association of Petroleum Producers (CAPP) has officially estimated that the wide Canadian oil price discount cost producers at least US$9.8 billion (C$13 billion) in the first ten months of 2018, according to The Canadian Press, but CAPP’s chief executive Tim McMillan says that the real costs could be as high as US$75.6 billion (C$100 billion) annually. The association has estimated that in October alone, when the WCS discount blew out to US$52 to WTI, Canadian producers were losing US$37.8 million (C$50 million) every day.
By Tsvetana Paraskova for Oilprice.com
