RBC Floats Oil-Sands Royalty Break to Ease Canada Crude Pain

(Bloomberg) -- With new pipelines unlikely to come online anytime soon, analysts at Royal Bank of Canada are floating a new idea to ease Alberta’s crude oil bottlenecks: Give producers a temporary respite from making royalty payments.

Suspending the average 5 percent royalty that Alberta’s oil producers pay to the province in the form of cash or barrels of crude could take 190,000 barrels of oil and 40,500 barrels of condensate a day off the market -- an amount greater than the current supply glut in western Canada, RBC analysts led by Greg Pardy said in a note Monday. That would drain as much as 7.4 million barrels from storage over three-and-a-half months, they said.

“The royalty holiday could be called upon, as needed, until other solutions fall into place, namely incremental crude-by-rail loadings, and Enbridge’s 375,000-barrel-a-day Line 3 Replacement,” Pardy said.

Alberta Energy Minister Marg McCuaig-Boyd, in response to reporters’ questions in Edmonton on Monday, said the province isn’t considering a royalty holiday as part of its response to the pipeline bottlenecks. The province previously has asked the federal government for help in increasing the volume of crude that can be shipped by rail.

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