Business

Alberta eases oil curtailment for operators who ship extra barrels by rail

The Alberta UCP government is creating a loophole for oil producers to get around oil curtailment limits, which were devised to reduce transport bottlenecks.

Operators can exceed their provincially-imposed output caps if they ship the extra barrels by rail, said Alberta Energy Minister Sonya Savage in a prepared statement today.

The exemption will help oil producers cope with the pipeline delays.

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Many oil producers are capable of producing more than their curtailment limits permit and this allowance will enable operators to use all available rail capacity in Alberta.

“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,” said Sonya Savage, Minister of Energy.

“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.”

Sonya Savage, Minister of Energy.

Industry approached government with a proposal to ship more crude by rail in exchange for curtailment relief. This short-term approach will help address the continued lack of takeaway capacity caused by pipeline delays that are negatively impacting Alberta’s oil and gas sector.

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Government will work with operators to set the special production allowance baseline, which will be based off the operator’s Q1 2019 average rail shipment.

Special production allowance:

  • In effect starting the December production month.
  • An allowance will be provided using a simple application process for operators who plan to increase their production and intend to move it by rail.
  • Operators must move all the additional production by rail and cannot overproduce their allowance.
  • Volumes moved under an allowance by rail cannot be nominated onto pipelines.

Alberta produced more crude oil in 2018 than could be shipped for export by rail or pipeline. This affected storage levels, Canadian crude oil prices and other aspects of the market.

To protect the value of our oil, the Government of Alberta temporarily limited production to match export capacity to prevent Canadian crude from selling at large discounts.

Due to continuing pipeline delays, oil production limits remain necessary through 2020. The curtailment policy has also been adjusted to give industry more flexibility to make timely business decisions and reduce red tape for small producers.

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The oil production limit has been extended to December 31, 2020, with possible earlier termination. This limit will be monitored closely and adjusted to better match export capacity.

Monthly production limits for raw crude and bitumen are set at:

  • August: 3.74 million barrels per day
  • September: 3.76 million barrels per day
  • October: 3.79 million barrels per day
  • November: 3.80 million barrels per day
  • December: 3.81 million barrels per day

The following curtailment policy changes will take effect October 1, 2019:

  • producers will be given 2 months notice of any changes to production limits
  • base limit increases from 10,000 to 20,000 barrels per day
  • energy minister can use discretion to set production limits after a merger or acquisition
  • extend provision for single operator oil sands facilities minimum operations in winter to December 31, 2020 and include December

The Alberta Energy Regulator administers the production limit on behalf of the government. The government’s authority to limit production ends December 31, 2020.

Under the formula that determines how space is allocated under the production limit, each company’s baseline production level is based on its highest level during their best single month from November 2017 to October 2018.

  • production limits apply to both oil sands and conventional oil, it does not apply to pentanes or natural gas
  • the first 10,000 barrels produced by each operator are exempt, this increases to 20,000 barrels on October 1, 2019
  • refining operations can access the oil supply required to meet their refining needs as there is still significant oil available

An AER panel will review company-specific concerns and make policy recommendations back to the Government of Alberta. The panel can be reached at curtailment@aer.ca.

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