Tuesday , January 19 2021

Albert's oil cuts backfire as crude-by-rail shipments collapse

Albert's efforts to alleviate a raw glut through mandatory production cuts can be a return, as Canadian heavy crude oil has become too expensive to transport by rail.

Two months after the provincial government announced the cuts, shipments from iron to rail fall, although the pipelines remain on or near capacity. Rail volume decreased 56 per cent. Last week, compared to three weeks earlier, after making a record in December, according to Genscape Inc., which monitors cargo-for-rail loads at some of the major terminals in western Canada.

"The rail economy is severely damaged and many railways stop or have stopped," said Suncor Energy Inc., CEO Steve Williams, on a conference call with analysts on Wednesday. "It will have the opposite effect on what the government wants."

Last week, Imperial Oil Ltd.'s managing director, Rich Kruger, said that commodity shipments out of its own Edmonton terminal would reach nearly zero this month from an already reduced 90,000 barrels a day in January.

"We have recently seen a decrease in rail loads recently," says David Arno, oil analyst at Genscape. "With the latest strength in Canadian crude differences due to the production cut, many Western Canadian shippers find it hard to make crude-by-rail economic."

Production cuts have helped Canadian strong raw materials to recover from record low prices due to bulb production and too few pipelines, but new problems have arisen. Western Canadian Select's US benchmark rebate was narrowed to less than $ 7 a day. Barrel last month, which is not enough to cover some pipelines to the US Gulf Coast and far too little to cover the cost of the railroad.

Too expensive

Last week, the government eased the mandate with 75,000 barrels a day after complaints from some oil producers. Still, heavy commodities continue at a discount of less than $ 10 a day. Barrel. To make the railroad economical, it should be between US $ 15 and US $ 20 per barrel, said Imperial Oil's Kruger.

Albert's government expects the price difference to "settle on a more sustainable level", spokesman Michael McKinnon said via email. "Our goal is, and has always been, to match production levels to what can be transmitted through existing pipelines and rail capacity, while encouraging a reduction in inventory levels," he said. "Even though we are not out of the woods yet, this temporary measure works."

Since the announcement of the cut, crude stocks have dropped 5 million barrels to 30 million barrels, the provincial government said last week. Stockpiles at the Canadian oil hub in Hardisty, Alberta, dropped 2.42 million barrels between January 16 and January 28 to the lowest level since November 2017, according to Kayrros SAS, an energy provider based in Paris.

Albert's oil producers have been struggling to bring their crude oil to the market, as new pipelines are blocked by court decisions and resistance from environmental groups. Although not unprecedented, Albert's oil prevention was seen as an extraordinary step in a free market economy. Suncor and Imperial both opposed the cutback program as government attacks that would damage investor confidence. Other companies, including Cenovus Energy Inc. and Canadian Natural Resources Ltd. supported them as needed.

– By help from Kevin Orland.


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