Interview: Alberta premier aims to end oil supply cuts this year as rail volumes rise

Washington — Alberta Premier Jason Kenney sees 2020 as a turnaround year for the province's oil sector as the government eases off production cuts and potentially ends them by year-end, as rail and pipeline takeaway capacity expands to meet full supply.

"I believe our oil market will be in rough balance between production and egress and we will hopefully no longer require curtailment," Kenney said late Thursday in an interview with S&P Global Platts in Washington, DC.

Alberta posted record-high oil production of 3.74 million b/d in December, up 162,000 b/d from November, despite the ongoing supply curtailments, as exemptions granted for crude-by-rail shipments allowed producers to boost output.

Podcast: Alberta pumps record oil output as premier looks to end supply cuts

Related coverage: Alberta unloads 120,000 b/d of crude-by-rail contracts

Curtailed operators have added 30 rigs year on year as they move capital back into growth projects on expectations that the government will continue to ease the restrictions this year, according to S&P Global Platts Analytics.

Kenney said the full end to the production cap will depend on the startup of Enbridge's 370,000 b/d Line 3 replacement project through the US Midwest.

He expects crude-by-rail shipments to average 500,000 b/d this year, with capacity reaching 550,000 b/d by the end of the year after quadrupling from 100,000 b/d to 400,000 b/d since the cuts were imposed in January 2019. Another roughly 200,000 b/d of capacity will be available from pipeline debottlenecking and optimization, he said.

WCS DISCOUNT

Kenney said his government will not ease the production curtailments in the first quarter and he is prepared to tighten them "if the differentials blow out, but we don't see that happening right now."

"Anything north of $30/b starts to become super painful for us," he added.

The discount for Western Canadian Select at Hardisty, Alberta, to WTI CMA was assessed at $17.35/b Thursday, narrowing 90 cents/b from Wednesday, marking the lowest discount since November 14.

The Alberta government is still working to offload crude-by-rail contracts to the private sector, but Kenney said it has taken months longer than expected. He aims to complete the process within weeks and said the new contracts would not result in lower crude-by-rail shipments.

Kenney said he "reluctantly" kept the oil production curtailments in place after inheriting them from former Premier Rachel Notley. He said the policy has worked as intended.

"A year ago we were giving oil away virtually for nothing," he said. "Had the situation continued into 2019, we would have ended up with basically zero capital spending, massive layoffs, bankruptcies, and it would have taken a bad situation and made it much worse."

DELAYED PIPELINES

Kenney said a recent court decision in favor of the federal government's 590,000 b/d TransMountain pipeline expansion to British Columbia bodes well for the project, but "we're not doing a victory dance because this is not done yet and there's going to be continued opposition."

"We all know there will be civil disobedience targeting this pipeline," he said. "We are going to get through this."

Kenney expects TC Energy to start laying pipe for the Keystone XL pipeline this spring and complete the project by 2022, allowing an additional 830,000 b/d of Canadian crude to flow to US Gulf Coast refiners, which have seen heavy crude imports from Venezuela and Mexico shrink.

"If we don't supply those refineries with our vast supply of heavy crude, we are concerned that they will retool to light oil, and we'll lose a critical market," he said. "I've been to Houston, and those refineries are desperate for the product we have in abundance, so Keystone XL is critically important."

While in Washington, Kenney met with US Energy Secretary Dan Brouillette to discuss the Keystone XL pipeline and plans to meet with four governors from US states along the pipeline's route.

Platts Analytics expects at least two of the delayed Canadian pipeline projects to be completed by the end of 2022.

The full interview with Kenney can be heard Monday on the Platts Capitol Crude podcast.