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osn22018 EXPLAINER-Wny is Canada's Alberta forcing oil production cuts? HYDROCARBON PROCESSING’ COPYING AND DISTRIBUTING ARE PROHIBITED WITHOUT PERMISSION OF THE PUBLISHER EXPLAINER-Why is Canada's Alberta forcing oil production cuts? sa/s/2018 Dec 5 (Reuters) - The Western Canadian province of Alberta this week announced mandated temporary cil production cuts, arare move aimed at bolstering sagging crude prices caused by rising production that has outstripped pipeline capacity and led to a glut in storage. WHY MANDATE PRODUCTION CUTS? Alberta Premier Rachel Notley said the mandated 8.7 percent cuts, some 325,000 barrels per day (bpd), are needed to draw down neat- record volumes of crude in storage in Western Canada and bring relief to sagging Canadian crude prices. Once storage volumes return to more normal levels, the forced cuts willbe reduced to 95,000 bpd, The cuts willbe spread among companies producing atleast 10,000 bpd, based on average production Crude production in Alberta's oll sands is expanding faster than pipeline capacity, creating a bottleneck and a buildup of product in storage. More crude is now moving across the border by rail and by truck, but itis not enough to clear the glut. Adding to the woes, refinery maintenance has taken some buyers temporarily offline ‘The steep discount has stripped billions of dollars from the Canadian economy by some estimates, and at one point Canadian oll was selling {for more than $50 less than US. il traded on futures markets. Canada produces some 4.6 million bpd and exports about 3.3 milion bpd to the United States, about 99 percent of Canada's total crude exports HOW UNUSUAL IS THIS? \Very. This isa rare move for a market economy like Canada, but it is not the fist time an Alberta government has mandated cuts. In 1980, then-Premier Peter Lougheed forced cuts to protest a national energy program that he said would have harmed the province's oilindustry DO THE OIL COMPANIES SUPPORT THIS MEASURE? The controversial cuts ae supported by many Canadian producers, but nota of them. Companies like Cenovus Energy inc and Canadian Natural Resources Ltd are vocal supporters ofthe move, with Cenovus saying the move will help it maintain capital spending to prepare it to move more oil when more pipelines are available in 2020. Executives from Canada’s Suncor Energy Ine, Husky Energy Ine and Imperial Gilt, integrated producers with domestic refinery and upgrading capacity, expressed disappointment, however, saying they prefer market solutions to the problem. HOW LONG WILL IT LAST? ‘The larger 8.7 percent cuts are expected to last three or four months into the frst half of 2019, according to a number of analysts, at which point much of excess storage willbe drawn down, After that, the smaller, 95,000-bpd cuts will remain in place until year-end, to ensure that storage levels do not get too high again. Alberta said it wil monitor the market closely and reductions willbe agjusted accordingly as storage is drawn down or new transport capacity comes online, HOW WILL INDIVIDUAL PRODUCER CUTS BE DETERMINED? Producers willbe allowed to choose where they cut production, allowing them to shut in their least lucrative barrels to make up their cut quota, instead of having to cut across the board, Alberta said. The baseline for each company will be calculated based on the best six months of the year. Each operator will have their fst 10,000 barrels per day exempted, so small producers are not affected. WHAT IS THE DIFFERENTIAL? hitpsilww hydrocarbonprocessing convnewsi2018/12/explsner-why-s-canadas-albertsforcing-ol-production-cuts 1 osn22018 EXPLAINER-Wny is Canada's Alberta forcing oil production cuts? ‘Western Canada Select (WCS) heavy blend crude typically trades at a discount to the West Texas Intermesiate (WTI) benchmark, with the lower price reflecting the cost of transport and the quality of the product, The discount has typically been around $15, but has widened in recent months, hitting a record at $52.50 below WT in October, according to data from Shorcan, WHAT'S HAPPENING WITH PIPELINES? Alberta and oll producers prefer to add more pipelines, but projects face ferce opposition from environmentalists and some Aboriginal groups. Construction is underway on Enbridge Inc’ Line 3 pipeline replacement irom Alberta tothe United States, with the project expected to be in service by the end of 2019. ‘TransCanada Corp's Keystone XL pipeline, from Alberta to the United Stale, is facing a supplementary environmental assessment after a {federal judge in Montana halted construction last manth, The impact on timing remains unclear ‘The third project is the Trans Mountain pipeline, which is now owned by the Canadian government. Plans to tripe the capacity ofthat line, wich uns from Alberta toa port in the Vancouver area, are undergoing a news regulatory review. Itis unclear when construction wil bein. WHAT ABOUT CRUDE BY RAIL? Crude by rail has ramped up sharply this year, hitting nearly 270,000 bpd in September. Alberta said last week that it would buy locomotives and ral cars to add an additional 120,000 bpd of crude by rail capacity. t expects the fst trains to be running by December 2019, with all online by August 2020. Crude by rail will narrow the sitferental, but rot as much as pipelines (Reporting by Julie Gordon in Vancouver; Esiting by Jonathan Oatis) From the Archive * Six considerations for turbomachinery control upgrades (/magazine/2018 /august-2018/special-focus-tlid-flow-and-rotating ‘eauipment/six-considerations-or-turbomachinery-contral-upgrades) + Viewpoint: “Inteligzing” the refinery for business sustainabilty (/magazine/2016 /june-2016/columns/‘viewpoint:nteligizing-the- refinery for-business-sustainabilty) * Business Trends: Global petrochemical overview-Part 1 (/magazine/2016 apri-2016/trends-and-resources/business-trends-global- petrochemical-overview-part-1) ‘+ Maximize petrochemicals in the FCCU to boost refinery margins, improve gasoline pool quality (/magazine/2016/tebruary: 2016/special-report-clean-fuels-and-the-environment/maximize-petrochemicals-n-the-fecu-to-boost-renery-margins-improve gasoline-pool-quality) * Business Trends: Clean fuels-a global shift to a low-sulfur world (/magazine/20 16/tebruary-2016/trends-and-resources/business- trends-clean-fuels-a-global-shiftto-alow-sulfur- world) + Top seven causes for lost olein production (/magazine/2015/april-2015/speciat-report-petrochemical-developments/top-seven: causes-for-lostolehn-production) hitpsilwwhydrocarbonprocessing convnewsi201812/explsner-why-s-canadas-albertsforcing-ol-production-cuts 2