By Liam Verster

Oil Production

Alberta to stop setting monthly oil production limits in December

Oct 23, 2020 | 6:09 AM

Beginning in December 2020, the Alberta Government will no longer set monthly oil production limits, in the hope that producers will utilize available pipeline capacity and create jobs.

The Government will extend its regulatory authority to curtail oil production through December 2021, though it will not set production limits, and there are no plans to resume production limits at this time. The decision comes as 16 percent of Alberta’s crude oil production remains offline, down from the 22 per cent at the start of the COVID-19 pandemic.

“Maintaining the stability and predictability of Alberta’s resource sector is vital for investor confidence as we navigate the economic conditions brought on by the pandemic, the commodity price crisis and the need for pipelines,” says Minister of Energy, Sonya Savage.

“This purposeful approach serves as an insurance policy, as it will allow Alberta to respond swiftly if there is a risk of storage reaching maximum capacity while enabling industry to produce as the free market intended.”

Since January 2019, production limits had been aligned with export capacity, which protected the value of the province’s oil by preventing Canadian crude from selling at large discounts. In a release Friday morning, the Government says the limits were intended to be a short term measure, but ongoing delays to pipeline projects have forced the production limits to be extended.

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While the province’s production capability exceeds the takeaway capacity, the COVID-19 pandemic and economic downturn has forced oil companies to produce well below those established limits.

The Alberta Government says they will continue to press for completion of pipeline projects, including Keystone XL, the Trans Mountain expansion, and Enbridge Line 3, in an effort to enhance the province’s ability to balance production with takeaway capacity.

In the meantime, the Government will closely monitor production, inventories, pipeline capacity and rail shipments to ensure production does not exceed export capabilities, in the hopes that the resources can be exported at full value.

Should storage forecasts show inventories growing, and in turn de-valuing the product, then production limits may be put back in place. If limits are to be reassigned, then the government will issue 30 to 60 days notice, to ensure that companies create a plan that enable them to slow production.