Alberta’s NDP Premier Rachel Notley will announce tonight what many expect will be a mandatory industry-wide cut in oil production to address a price drop she says is costing the provincial treasury $80 million a day in lost revenue.
Notley’s announcement is aimed at addressing the difference in the price of Western Canadian Select, the type of oil produced in Alberta, relative to the benchmark West Texas Intermediate (WTI).
That gap hit nearly $50 US per barrel in late October. Analysts attribute the difference to a lack of pipeline capacity to get Alberta oil to market and other factors like refinery bottlenecks in the U.S.
Notley will make her announcement at 6 p.m. MT. Jason Kenney, leader of the United Conservative Party, Alberta’s official opposition, will provide reaction about 30 minutes later.
CBC will live stream Notley’s news conference on CBC.ca and Facebook. Kenney’s news conference will be carried live on Facebook.
Any change in the price of oil has profound effects on Alberta’s resource-dependent economy.
Notley has faced pressure to take action, particularly in light of a Federal Court of Canada ruling in August that halted construction on the Trans Mountain Pipeline expansion to the west coast.
The so-called price differential started its sharp increase in September, rising to as much as $47 US a barrel in the last 10 days of October.
The gap was $28.50 US a barrel when markets closed on Friday.
The problem is caused by overproduction and a lack of pipeline capacity to get oil to market, according to the Alberta government. Notley said in an op-ed piece this week that there are 35 million barrels of oil selling at what she called “fire-sale prices.”
A production cut was first proposed by the Alberta Party on Nov. 17. Kenney initially called for voluntary curbs on production by the industry, but changed his mind and proposed a 10-per-cent cut last week.
In a speech to the Toronto Board of Trade Thursday, Notley said Alberta was looking to buy 80 locomotives, with each train pulling 100 to 120 cars to get oil to market.
However, this is a medium-term solution to the current backlog in storage, as it would take time to buy or rent the necessary rail equipment.
On Friday, Notley used the op-ed to lay out the pros and cons of an industry-wide production cut.
Allowing the status quo to continue won’t hurt producers that also have refinery operations, but it will hurt smaller companies, leading to bankruptcies and job losses, she wrote.
If a temporary production cut is introduced, Notley said it could help reduce oil stockpiles and shrink the price gap between Western Canadian Select and West Texas Intermediate.