The Government of Alberta is implementing a mandatory 8.7% production cut, or decrease of 325,000 barrels a day, of raw crude oil and bitumen starting on January 1, 2019.
Alberta Premier Rachel Notley announced the mandatory cut Sunday night and said the daily reduction will remain in place until the 35 million barrels of processed oil currently in storage in the province is shipped to markets, likely by the spring.
The reduction will drop the daily production of crude oil and bitumen to an average of 95,000 barrels a day until curtailment ends at the end of 2019, when Enbridge's (T.ENB) new Line 3 pipeline begins operating. The Alberta government is also planning to acquire locomotives and rail cars by the end of next year to transport 120,000 barrels a day of crude and bitumen.
Notley said the decision to impose mandatory production cuts was difficult but necessary.
"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."
The cuts will affect about 25 larger bitumen and conventional oil producers. Larger producers will see their first 10,000 barrels exempted each day. Companies that produce less than 10,000 barrels a day will not be impacted by the daily cuts.
Premier Notley's announcement is aimed at addressing the difference in the price of Western Canadian Select oil relative to the benchmark West Texas Intermediate (WTI). That gap hit around $50 in October due to a lack of pipeline capacity to get Alberta oil to market.
The provincial government estimates that Alberta is losing $80 million a day due to this discount. The measures are expected to narrow the gap by $4 a barrel and contribute an additional $1.1 billion to the Alberta treasury by the fiscal year ending in 2020.
