Alberta seeks to increase oil production following attacks on crude oil production facilities in Saudi Arabia

Alberta plans to ease cuts in oil production to allow companies to export more crude oil after weekend attacks that have reduced Saudi output.

Prime Minister Jason Kenney said on Monday that the province was discussing with oil producers to allow them to exceed government-imposed production limits if they could export crude oil by rail. The talks are linked to the province's efforts to transfer the contracts of 4,400 cars owned by the government to energy companies.

If the province can find a way to transfer car leases to the industry, it is "very likely" that the extra crude oil shipped by rail would be exempt from production limits, Kenney told New Brunswick. York, where it was commercial mission.

The increase in crude oil production from Alberta – which had been reduced by the previous NDP government as a way to address the overabundance of supply related to the lack of pipeline capacity – would allow Canada to solve the problems of global shortage due to the attacks, which forced the Saudis to reduce their production by more than half. But it is unlikely to have a significant effect on world crude prices.

According to Judith Dwarkin, chief economist at RS Energy Group, emergency stocks around the world, estimated at about 1.8 billion barrels of oil, as well as rapid growth in US production, should reduce the risk of sharp price increases.

"Global supplies will reorganize to meet the demand, wherever it is," Ms. Dwarkin said. "Canada is producing at about full capacity right now. It's not like we have a lot of unused capacity, but we can suddenly call on us and send them by pipeline or by boat. ship. But I think governments need to free up strategic reserves if they wish. "

Oil prices rose after weekend strikes at Saudi Arabia's largest oil processing plant and one of its largest oil fields. Yemeni Houthi rebels have claimed the drone attacks that destroyed 5.7 million barrels per day (bpd) of oil production, which represents more than 5% of global demand. The severity of the damage and the duration of the breakdowns are the biggest jokers of the oil markets.

The United States and Saudi Arabia have blamed Iran, which is allied with the Houthis, and the intensification of military tensions has reintroduced a political risk premium into oil prices.

Mr. Kenney made these comments in an interview with Bloomberg.

North American benchmark West Texas Intermediate closed up 14.7% to 62.90 USD per barrel Monday, its highest level since May, and shares of Canadian energy companies soared .

Canada faces constraints on its ability to ship crude oil after years of delay in adding pipeline capacity to both the United States and the Pacific coast. In January, the Alberta government imposed a 325,000 bpd reduction to reduce the high discount on Alberta's heavy oil price relative to WTI.

According to the Net Energy Exchange, Western Canadian Select heavy crude for last October delivery is sold at $ 11.95 per barrel less than WTI. This compares to a reduction of more than 40 USD a barrel at the end of 2018.

The limits have been gradually reduced, but the government has recently extended the limits until 2020.

Partly because of bottlenecks, Canada has little ability to quickly stimulate exports outside the United States.

However, allowing companies to exceed their production limits and sending oil by rail to markets such as the US Gulf Coast would be beneficial to the production and refining industries, said Jackie Forrest, Director Principal of the ARC Energy Research Institute.

"This is really the best scenario because, in doing so, we can reduce our differentials as much as possible and get the best price for our crude oil by allowing high volumes through the crude oil policy by rail," said Ms. Forrest. . "We can maximize volume and price."

The province's United Conservative Party government has received 16 offers for wagon contracts, which were signed under former Prime Minister Rachel Notley, Kenney said in an interview with Bloomberg. Christine Myatt, a spokeswoman for the Prime Minister, declined to give further details on the relaxation potential of the cuts.

Ottawa has taken over the construction of the $ 7.4 billion Trans Mountain Pipeline Expansion. However, as long as the contentious project is not completed, the capacity to move volumes to the coast is limited. Nevertheless, the shipment of more Canadian heavy oil to the southern United States could release alternative stocks destined for Asian markets currently served largely by Saudi Arabia, Forrest said.

Canada is already the largest supplier of non-domestic oil in the United States, with a delivery volume of 4.4 million b / d in June, according to the US Information Administration. The United States imported just under 580,000 b / d from Saudi Arabia. Meanwhile, US production has more than doubled due to the haste to develop shale supplies over the last decade, reaching 12.1 million b / d this year.

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