Alberta Oil Glut Is Best Solved by Private Sector, Kenney Says

(Bloomberg) -- The top rival to Alberta’s premier is signaling he doesn’t favor a government-mandated cut in crude oil production as Canadian prices hit a record low, saying he would prefer to see a market-based solution to the problem.

Alberta’s heavy crude plunged to a record low Thursday amid a supply glut that has filled pipelines, rail cars and storage containers. Producers like Cenovus Energy Inc., Nexen Energy ULC and MEG Energy Corp. are calling on Premier Rachel Notley to force an across-the-board production cut, while integrated companies like Suncor Energy Inc., Husky Energy Inc. and Imperial Oil Ltd. oppose the idea because it would hurt their refining operations.

Notley has damped expectations for a forced cut, but not ruled it out entirely. She has called for more rail cars to ship oil and signaled other steps could be coming. Meanwhile, the crisis is costing her treasury millions of dollars with an election only months away. Polls show she’s on track to lose power to the United Conservative Party, whose leader Jason Kenney signaled Thursday that he doesn’t want her to intervene and cut production.

“Obviously a private-sector solution is preferable to government intervention,” Christine Myatt, a spokeswoman for Kenney, said in a statement Thursday. “All industry players have a shared interest in addressing the short-term oil glut in Alberta that is contributing to the price-differential crisis.”

Political Crossroads

Canada’s crude crunch is coming at a political crossroads in Alberta -- Notley is under pressure to act at a time when polls indicate she has an uphill climb to win a second term. Her left-leaning New Democrats could be criticized for intervening in a market if they force a cut, and they could be criticized for doing nothing during a crisis if they don’t.

Notley’s government has said it’s fighting to build pipelines and add rail capacity and that forcing production cuts is more complicated than the last time the province did it. She said on Thursday that her government is “working furiously” with the industry on the issue and will have more to say in the coming weeks.

“We have a suite of options at our disposal that we are currently working with to help chip away at that differential,” Notley said in response to reporters’ questions in Calgary. She said that both sides of the production-cut issue “raise very good points.”

Kenney said he’s talking with the oil industry about the issue, too.

“The ultimate solution is additional pipelines, which is exactly why it was so foolish for governments to abandon viable pipeline projects,” his spokeswoman said.

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