Alberta extends oil-production curtailment through 2020

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Alberta extends oil-production curtailment through 2020

 

 

Alberta has extended its production cuts through 2020, saying pipeline delays threaten to exceed takeaway capacity by about 150,000 b/d.

“By more closely aligning production with takeaway capacity, curtailment is expected to help prevent extreme widening of the light-heavy differential,” said Alberta Energy Minister Sonya Savage, adding that Canadian crude oil prices are likely to drop without the production cuts.

The curtailment program, rescheduled to last until Dec. 31, 2020, had been scheduled to end on the last day of this year.

Enbridge Inc.’s expansion of the Line 3 pipeline was expected to be online by late this year, but the project was set back about a year because of permitting delays in Minnesota, leaving Alberta’s oil production higher than available transportation to refineries.

Litigation also has slowed TC Energy Corp.’s planned Keystone XL pipeline and the Canadian government’s expansion of the Trans Mountain pipeline.

Oil oversupply

Alberta officials said increasing the base limit for curtailment to 20,000 b/d from 10,000 b/d will mean that only 16 of more than 300 producers will be subject to the updated production limits.

This will allow small producers to increase investment and production without significantly reducing overall Alberta oil production. The changes become effective in October, the government said.

Alberta officials noted that early termination is possible for ending the Dec. 31, 2020, curtailment.

Benny Wong, Morgan Stanley equity analyst, said he expects relatively stable and range-bound Canadian oil prices for the next few months.

“This should support attractive cash-return programs,” for producers, Wong said. He said the curtailment extension provides incremental encouragement that oil price differentials will stay relatively attractive into 2020.

He compared Canadian oil prices with Brent oil prices and US light, sweet crude oil prices, saying Alberta’s government has flexibility to defend differentials.

“We are waiting for clarity around Alberta’s divestiture of its rail contracts in early fall,” Wong said, adding the curtailment program is not a long-term way to resolve take-away capacity constraints.

 

 

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Enbridge Pipeline Contracts Shift More Power to Refiners

 

Bloomberg) -- Enbridge Inc.’s plan to contract space on its Mainline oil pipeline system is drawing the ire of producers who argue the new system will give too much power to Midwest refiners.

ConocoPhillips and Canadian Natural Resources Ltd. are the latest companies to object to Enbridge’s proposal that would have shippers sign long-term commitments on the country’s largest crude export pipeline. The plan, which would only apply to Canadian segments of the system, would create uncertainty for oil-sands producers who use the Mainline to access other pipelines downstream, the companies said.

At the same time, it could lend an advantage to some of the largest refiners in the U.S. Midwest, such as BP Plc and Exxon Mobil Corp., who source crude on the Mainline, according to Mike Walls, an analyst at Genscape Inc.

“Producers are concerned that if a relative few large refiners in the U.S. control a large portion of the mainline space, their access to customers will be limited as well as their ability to get to more diverse markets like the Gulf Coast,” Walls said in an email. “They would have less spot capacity and in the end would have to sell to the owners of the committed capacity.”

Exxon spokesman Jeremy Eikenberry declined to comment. BP didn’t immediately respond to a request for comment.

Enbridge wants to reserve as much as 90 percent of space on the Mainline to companies with multiyear contracts, charging them whether they ship oil on the line or not. The current common carrier system allows shippers to nominate the amount they want to ship each month and space is rationed when volumes exceed capacity.

The 2.8 million barrel-a-day system has seen heavy rationing over the past year and a half as surging production has run into nationwide pipeline bottlenecks. Enbridge is currently holding an open season to sign up shippers and seeks to start sending contracted volumes down the line in 2021.

“The offering that we’ve got in that open season is responding to the needs of our customers and is supported by shippers representing the majority of the volume on our system,” Guy Jarvis, Enbridge’s executive vice president for liquids pipelines, said by phone. “The nature of trying to create one offering for the needs of 40 to 50 customers is that it doesn’t really create a scenario where everybody can have everything they want.”

In its objection Tuesday, Canadian Natural argued that the proposed change comes at an inopportune time, with takeaway capacity out of western Canada severely constrained. The plan also disadvantages non-integrated producers in favor of “shippers who can supply their own downstream” facilities, company President Tim McKay said in a letter.

Separately, ConocoPhillips Canada President Kirk Johnson said the plan creates uncertainty for companies with contracts to ship on connecting pipelines such as the Flanagan South system that runs from Illinois to Oklahoma, according to a letter to the National Energy Board. Going from a contract carrier system to a common carrier system and back to a contract carrier system creates a “regulatory and contractual mismatch,” he said.

The plan already has drawn objections from Suncor Energy Inc., Canada’s largest integrated energy producer, as well as oil-sands driller MEG Energy Corp. and the Explorers & Producers Association of Canada, which represents small- and medium-sized producers.

To contact the reporters on this story:
Robert Tuttle in Calgary at rtuttle@bloomberg.net;
Kevin Orland in Calgary at korland@bloomberg.net