EDMONTON, Alberta — The province of Alberta will permit oil companies to exceed production quotas beginning in December, provided the excess crude moves by rail.
The decision, which was expected by both Canadian National and Canadian Pacific and will give their crude oil traffic a bump, was announced today.
“The special allowance program will protect the value of our oil by ensuring that operators are only producing what they are able to move to market,” Minister of Energy Sonya Savage said in a statement. “Pipeline delays ultimately have constrained market access and dampened investment in our oil sector. This program will lead to more production and increased investment, benefitting industry, our province’s bottom line, and, ultimately, Alberta taxpayers.”
The previous Alberta government imposed production curtailments in January, and in February reached a $3.7-billion deal with CN and CP to haul the province’s landlocked crude oil to markets in the U.S. and Canada starting this summer. [See “Province of Alberta reaches crude-by-rail deal with CN and CP,” Trains News Wire, Feb. 21, 2019.]
But the New Democratic Party was ousted in elections in April, and the new provincial government, led by the United Conservative Party, set out to privatize the contracts and ease production quotas.
The Canadian railways welcomed the decision.
“CN has the capacity to move more crude volumes and remains committed to working with our partners in industry and government to get Canadian crude oil to markets safely and efficiently,” spokesman Jonathan Abecassis says.
In September, CN was handling about 180,000 barrels of crude per day. It can flex up capacity to 300,000 barrels per day by calling back furloughed crews and activating stored locomotives, executives said this month.
Canadian Pacific handled just over 28,000 carloads of crude in the third quarter, Chief Marketing Officer John Brooks said last week. The easing of production quotas could allow fourth quarter volumes to grow to 30,000 carloads or more, he said on the railway’s earnings call.
Most of the oil will be destined for refineries on the U.S. Gulf Coast, where it can be sold at higher prices. The balance of the oil will head to refineries on Canada’s west and east coasts.
Alberta produces about 190,000 more barrels per day than can squeeze into existing pipelines.
Last year, Canadian crude exports to the U.S. reached record levels, but shipments sank earlier this year amid the production curtailments and unfavorable price differences between Alberta crude and other sources of oil.
Railway executives expect it to be another two or three years before new pipeline capacity comes on line to handle nearly all of Alberta’s production.
Additional pipelines need not be built when railways handle oil shipments to different destinations in a timely and efficient manner. No more digging of ground and burying pipes are necessary.