The Alberta Government announced today that it would lift curtailments on monthly oil production as of December 2020. Current forecasts indicate that inventories will likely remain low, with sufficient export capacity to allow the system to operate efficiently on its own well into 2021.
Alberta production was significantly lower in August than the 3.81 million barrels per day curtailment limit at 3.10 million barrels per day. According to Genscape, as of Oct. 16, inventories were at about 20 million barrels. In January 2019, there were production limits to inventories constituting 40 million barrels.
Due to the economic effects of COVID-19, experts do not expect production in Western Canada to be above pipeline capacity before mid-2021 at the earliest, and rail and storage inventories are expected to remain low.
Before COVID-19, the Alberta Government planned to exit curtailment by the end of 2020, provided export routes were in place, including the completion of Enbridge Line 3. Enbridge is proceeding with the final permitting process in the U.S. and estimates Line 3 will be in service in 2021.
Since January 2019, production limits have aligned production with export capacity, protecting the province's oil's value by helping prevent Canadian crude from selling at massive discounts. Ongoing delays to pipeline projects led to the monthly production limits continuing through November 2020.
These delays mean that Alberta's production capabilities still exceed its takeaway capacity, but – due to the COVID-19 pandemic and the resulting economic downturn – Alberta oil companies have been producing well below the established production limits for several months.
"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 Alberta's Minister of Energy, Sonya Savage. "This purposeful approach serves as an insurance policy, as it will allow Alberta to respond if there is a risk of storage reaching maximum capacity while enabling the industry to produce as the free market intended."
The completion of long-awaited pipelines – including Keystone XL, the Trans Mountain expansion, and Enbridge Line 3 – will enhance the province's permanent ability to balance production and takeaway capacity, helping to ensure Alberta's resources are exported at full value.
The A2A Railway, which received a presidential permit last month, will also alleviate the once concerning pipeline bottleneck by granting international market access to Albertan crude, especially in Asia. Once trading at negative values mid-April, commodity prices have partially rebounded to pre-COVID levels at over $40 a barrel (WTI).
At this time, the Alberta Government does not plan to resume production limits.