TORONTO – The Premier of Alberta announced Sunday night that she is imposing an 8.7% cut in oil production across the province on the Canadian province to address the glut of storage that has affected Alberta oil prices.
Premier Rachel Notley said production would be reduced by 325,000 barrels a day in January due to shipping problems that she attributed to lack of pipelines. The government said the reduction would be assessed each month.
Alberta produces 3.7 million barrels a day, but 190,000 barrels more than can be shipped. About 35 million barrels are in storage, and the excess supply means that the province's crude sells for about $ 10 a barrel, a fraction of what other global producers get.
Notley said the Canadian economy is losing 80 million Canadian dollars (60 million US dollars) a day. The Alberta government believes this reduction will raise the price per barrel by four dollars a barrel by spring
"I want to be clear. It's a short-term measure, "Notley said. "We basically give our oil for free … it's not sustainable."
Canada has the third largest oil reserves in the world and is the largest source of foreign oil for the United States.
Alberta needs new pipelines to expand its export options for growing oil sands production. Currently, 97% of Canada's oil exports are destined for the United States, which is full of oil.
The Prime Minister has already announced that the province would purchase up to 80 locomotives and 7,000 tank cars, which are expected to cost hundreds of millions of dollars, to move the province's surplus oil to the markets, the first deliveries are scheduled for the end of 2019. But rail cars, new pipelines and increased refining capacity in the domestic market would not provide a quick relief.
Notley has called the decision to cut production a difficult decision as there is no consensus in the industry.
Cenovus Energy proposed a cut last month and this idea was supported by opposition politicians in Alberta, including United Conservative Party leader Jason Kenney. However, the companies Imperial and Husky said on Friday that they opposed non-voluntary production cuts but supported rail investments, as this could help improve market access.
A number of proposed pipelines have been delayed or rejected.
The Federal Court of Canada has put an end to the controversial expansion of the Trans Mountain Pipeline that would almost triple the oil sands oil flow from Alberta to the coast of Canada. Pacific – a setback that occurred just as the federal government purchased the project to help ensure its construction in a strong environmental and Aboriginal environment in British Columbia. The court ordered the country's National Energy Board to resume the pipeline review.
A US federal judge also blocked a construction permit for the Keystone XL pipeline from Canada and ordered its officials to conduct a new environmental review.
The Canadian federal government rejected Enbridge's proposed Northern Gateway Pipeline to the Pacific Coast, and TransCanada's Energy East Pipeline to the Atlantic Coast had also not been implemented.
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