Cenovus calls on Alberta to impose cuts in oil production to drive up prices

One of Canada's largest oil companies is urging the Alberta government to intervene directly in the market to reduce the province's crude oil production and significantly increase prices.

Cenovus Energy Inc. executive director Alex Pourbaix said the province was facing a "global economic disaster" that justified the government's move away from free market principles and ordered companies to cut back on their production. oil.

Any action taken by Alberta to impose limits on the amount that petroleum producers can send to the market would mark a strategic shift in a province that has long promoted free enterprise and open competition among the players in its most important sector. . But some say that the current crisis in the industry calls for urgent measures.

"We are really in the middle of an economic crisis," Pourbaix said in a telephone interview Wednesday in Calgary.

"I take no pleasure in suggesting that we should have a government intervention, but we are dealing with a complete failure of the market."

Alberta oil companies must obtain initial regulatory approval for their projects, but actual production is not regulated.

The industry has been affected in recent months by the pipeline shortage, resulting in inventory build-up in the province and a drop in prices relative to the main North American benchmark, West Texas Intermediate. (WTI).

The Keystone XL pipeline – which was approved by US President Donald Trump in early 2017 – remains blocked following court challenges in the United States. The federal Liberal government has approved the Trans Mountain Pipeline Expansion Project by the end of 2016, but is now trying to get it back on track after the federal court's approval cancellation.

Heavy crude from Western Canada generally enjoys a discount of about $ 15 per barrel compared to WTI, but this haircut has risen to more than $ 40 this fall. And in the last two weeks, oil prices have generally declined. With the recent fall of WTI, Alberta oil is now selling at less than $ 15 per barrel.

The Alberta government is consulting with industry leaders and "does not remove any options," said Wednesday a spokeswoman for Premier Rachel Notley.

"The difference in oil prices currently is absurd, and that is exactly why Premier Rachel Notley is fighting to build new pipelines and is pushing Ottawa to step up its efforts to help close the backlog of shipments." railways, "said Cheryl Oates, the Prime Minister's director of communications, an email. In the past month, Notley has urged the federal government to buy cars that can be used for oil exports.

Mr. Pourbaix stated that the province, as the owner of the resources extracted by the companies, has the legislated power to order them to reduce their production. The then Prime Minister, Peter Lougheed, used this trend during the conflict between the province and Ottawa over the national energy policy.

In a report released Monday, the investment company Peters & Co. Ltd. Calgary-based said that if the cuts for heavy oil remained between 40 and 2019 USD, the province would lose 50 billion dollars of economic activity and the provincial government 5 billion dollars revenue. (The provincial government's budget is about $ 50 billion.)

Cenovus has announced its own temporary production reductions of up to 50,000 barrels per day. However, the CEO said some refining competitors are making significant profits from lower crude oil prices and therefore have little incentive to cut production.

Although he did not mention the names of the companies, Suncor Energy Corp. and Imperial Oil Ltd. have refineries that take advantage of a cheaper crude oil.

Suncor says it has invested billions of dollars in Alberta in the treatment of oil sands bitumen and is now taking advantage of this strategy.

The company is opposed to government action that Cenovus is demanding.

"Government intervention in a marketplace would send bad signals to the investment community regarding business in Alberta and Canada," Suncor spokeswoman Sneh Seetal said in an e-mail.

"We need to take a long-term view and allow the market to function as it should. There are already indications that the market works. "

Mr. Pourbaix did not give a precise estimate of the quantity of production to be reduced, but noted that the badysts' reports forecast a figure of between 200,000 and 300,000 barrels per day.

According to the National Energy Board, western Canadian oil production is expected to average close to 4.5 million barrels a day this month. This represents an increase of 350,000 barrels per day since the beginning of the year.

Mr. Pourbaix said that he thought the price reductions would gradually decrease until 2019 with the increase in rail capacity and, at the end of the year, when Enbridge Inc. will complete the expansion of its main export pipeline to the United States.

Asked that Ottawa should take emergency measures to deal with the crisis, the executive of Cenovus said that the federal government should focus on rehabilitating the development. Trans Mountain Pipeline and complete it as soon as possible.

According to the Peters & Co. Ltd. report, producers have already reduced their production by about 200,000 barrels a day for November and December.

"The Alberta government is facing huge gaps and should be motivated to improve the situation in the short term," he said.

Various companies – led by Imperial Oil – plan to increase crude oil transportation capacity by rail over the next few months. But the Peters & Co. report says that expectations of an additional 150,000 barrels per day by the middle of next year are probably too optimistic.

However, the Alberta government would face enormous challenges if it tried to respond to Cenovus's call for direct action, said Warren Mabee, Director of the Institute of Energy and Environmental Policy. from Queen's University. Companies that profit from lower crude prices would oppose this action, as would some producers who might feel that their government was losing money, said Mabee.

At the same time, any provincial action to reduce production and raise prices would likely provoke a reaction from the United States, where refineries and consumers have benefited from lower prices, he said. This week, Trump blamed Saudi Arabia for planning to cut production due to falling world crude prices.

Under the current North American Free Trade Agreement, the intervention suggested by Cenovus could trigger retaliation by the Americans, Mabee added.