Washington — Alberta's oil production cuts and lack of progress on new pipeline capacity may contribute to Premier Rachel Notley's party losing the April 16 provincial election, as opposition leader Jason Kenney's party takes a lead in polls with promises of quicker action on energy policies aimed at bringing more Alberta crude to international markets.
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The oil policy fight heated up this week with Notley promising imminent federal approval of the 590,000 b/d Trans Mountain pipeline expansion if voters keep her in office, while Kenney promised to threaten British Columbia with an oil embargo on the first day of his administration to move the stalled pipeline project forward.
Notley's government imposed mandatory production cuts in January in the face of a record wide price discount for Western Canadian Select to WTI at Cushing.
Platts assessed the WCS discount to WTI at $9/b Wednesday, compared with the record wide differential of $51.50/b on October 11. It has stayed within $15/b since January 2.
With pipeline outlets full, many Alberta producers have looked to rail to get their crude oil to the US Gulf Coast. But for some, the forced cuts that tightened the WCS discount have hurt rail economics.
Producer Imperial Oil said during its last earnings call that it would cut back or abandon rail shipments altogether because of the tighter price spreads. January saw an 8% decline in crude-by-rail shipments from an all-time high in December of around 354,000 b/d, according to Canada's National Energy Board.
Western Canadian crude and diluent supply fell to 4.4 million b/d in January, down 405,000 b/d from December and down 33,000 b/d from a year earlier, according to S&P Global Platts Analytics.
Alberta's production cuts have been reduced from the originally mandated 325,000 b/d cut in January. Notley has reduced the cap by 100,000 b/d since then, and has planned another 50,000 b/d reduction by June.
Notley also struck a deal with Canada's two largest railways for the province to lease 4,400 rail cars to move an additional 120,000 b/d of oil to market starting in July.
"Moving oil by rail clears the backlog, shortens curtailment, sends a positive signal to international investors and makes a profit for Albertans," she said. Kenney has promised to cancel the rail plan, calling it "corporate welfare." He said oil companies would find a way to ship more oil by rail regardless of the government help.
Platts Analytics expects crude-by-rail volumes to increase in March and April but likely shrink in May, as the narrowing WCS at Hardisty price discount to WCS at Nederland, Texas, closes the arbitrage for most rail shipments to the Gulf Coast. That discount has averaged $10.10/b so far in April, tightening from $13.47/b in February, Platts data shows.
Kenney has blamed Notley's administration and the federal government for failing to make any progress on building new pipeline capacity to move Western Canadian oil to the East or West coasts for tanker exports to Asia or to the US Gulf Coast.
"After years of countless delays and unanswered obstruction by your fellow New Democrats, no pipe is actually in the ground," he said to Notley on Twitter Monday.
US Gulf refiners' demand for heavy crude like WCS has increased sharply since the US imposed sanctions effectively blocking Venezuelan imports. While Canadian producers would like to fill that supply gap, maxed-out pipeline and rail capacity make it unlikely they will meet any more than about one-fifth of the new demand.
In the final week before voters head to the polls, Notley asked for more time to solve Alberta's pipeline issues.
On Trans Mountain, she said she expects Ottawa to approve the project by the end of May after addressing all the problems raised by a federal appeals court that blocked the project last year. She said public support has grown for the project across the country, including among indigenous groups along the route.
"I'm willing to bet my political future on it and a whole bunch of other things too," she said. "We're going to get this pipeline built. And when it happens, it will be the first pipeline to tidewater in over 60 years. Albertans need to have faith that we will get this done."
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