June 27, 2019 / 7:44 PM / 4 months ago

UPDATE 2-Alberta eases oil production curtailments for August

(Adds details on pipeline delays, crude-by-rail program)

By Nia Williams

CALGARY, Alberta, June 27 (Reuters) - The government of Alberta, Canada’s main crude-producing province, eased crude oil production curtailments for August on Thursday, setting the limit at 3.74 million barrels per day, compared with 3.71 million bpd in July.

Alberta introduced mandatory curtailments effective Jan. 1 this year to tackle pipeline congestion that left crude stranded in storage tanks in the province and widened the discount on Canadian oil versus U.S. crude to record levels.

The Alberta government said letters were sent to the 29 producers subject to the production limits, who all produce more than 10,000 bpd.

The statement said the province was easing the August limit “due to the private sector growing its crude-by-rail capacity, declining inventory levels and improved efficiencies in export pipelines.”

Curtailments have eased gradually since they were first introduced and are intended to last only until the end of 2019, although Alberta Premier Jason Kenney said this month they may have to be extended into 2020.

Canada holds the world’s third-largest crude reserves, the vast majority of which are in northern Alberta’s oil sands. A delay in building new export pipelines because of environmental opposition and regulatory hurdles has slowed development of the energy sector.

The Canadian government last week approved an expansion of the Trans Mountain pipeline, which runs from Alberta’s oil sands to British Columbia’s coast, but it is not expected to be in service before 2022 at the earliest.

Enbridge Inc’s Line 3 replacement project, which will double capacity of a pipeline carrying crude from Alberta to the U.S. Midwest, is delayed until the second half of 2020.

In the interim, Canadian producers are increasingly relying on rail to ship crude to market. Crude-by-rail exports have been rising since the start of this year, although Alberta is seeking to offload deals signed by the previous government to the private sector.

The previous New Democratic Party government signed contracts to ship up to 120,000 bpd of crude by rail before being ousted by the United Conservative Party in an April election.

On Thursday Alberta Energy Minister Sonya Savage said the province hoped to divest the rail program by the fall, and had hired Canadian Imperial Bank of Commerce to oversee the move.

“As a government, we are accountable to the taxpayer,” Savage said in a statement. “We will leave crude-by-rail in the hands of the private sector while making decisions that ensure the best outcomes for Albertans and our energy sector.” (Additional reporting by Rod Nickel in Winnepeg; editing Steve Orlofsky and Bill Trott)

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