Alberta To Fight "Air Barrels" As Oil Prices Continue To Plunge

Authored by Irina Slav via Oilprice.com,

Albertan oil producers need to become warier of overbooking already filled to capacity oil pipelines creating what’s commonly called “air barrels” as these contribute to the huge discount Canadian crude is trading at to WTI and other benchmarks. This is the message from Alberta’s Premier Rachel Notley, as reported by the Calgary Herald.

The oil industry in Alberta has been scrambling to find a way out of the discount that has eaten deeply into producers’ bottom lines. Since new pipelines are far from likely to come into operation in the foreseeable future, other options are being considered, including, most recently, deliberately cutting production, OPEC-style, to prop up prices.

Producers, however, are divided on this. While Cenovus is all for government-initiated cuts in production, Suncor, an equally large producer, is against it.

“We’re probably producing about 200,000 or 300,000 barrels per day of oil in excess of our ability to get that oil out of the province, either by pipelines or by rail,” Cenovus’ CEO Alex Pourbaix told Canadian media earlier this month.

On the other hand, “Our position is that government intervention in the market would send the wrong signals to the investment community regarding doing business in Alberta and Canada. And we really do need to take a long-term view and allow the market to operate as it should,” a Suncor spokeswoman said.

The provincial government, meanwhile, is considering closer scrutiny of pipeline and railway shipments in order to see which producers are guilty of creating “air barrels”. It could then hold them accountable. The problems with this approach are that it cannot be deployed immediately and that it will have a limited scope, as the provincial government could only give itself the powers to track shipments within Alberta itself.

While the industry and the government are trying to come up with some sort of solution to the price problem, Western Canadian Select was trading at US$15.20 a barrel at the time of writing, compared with US$56.96 a barrel for West Texas Intermediate.