Alberta Seeks Refineries, Could Cut Oil Output, Notley Says

(Bloomberg) -- Alberta will pursue building new refineries as the oil-rich Canadian province looks to weather a crude price crunch, while a forced production cut also remains an option, Premier Rachel Notley said.

Notley said she’ll announce a plan to expand “made in Alberta” crude upgrading and refining in the coming days and has appointed three envoys to work with the industry and federal government to seek solutions for the dramatic discount earned for domestic oil. Asked if the province is considering mandating a production curtailment to help boost prices, she said no option has been discarded.

“At this point, all I will say is that there are a number of options in the suite of options and there is no option that has been taken off the table at this point,” Notley said at a news conference in Edmonton. Alberta is being treated as a “branch plant for the U.S.,” she said.

Canadian crude is trading near record lows amid pipeline bottlenecks, rising inventories and a decline in global oil prices. The Western Canada Select benchmark fell to under $14 a barrel last week, the lowest in Bloomberg data stretching back a decade. The depressed prices has prompted some oil companies including Canadian Natural Resources Ltd. to cut production and some to suggest that Alberta’s government should require companies to cut output.

Alberta Seeks Refineries, Could Cut Oil Output, Notley Says

The discount that Canadian producers receive for their heavy crude relative to the West Texas Intermediate benchmark, of about $40 a barrel, is costing the Canadian economy C$80 million ($60 million) a day, she said.

The envoys she appointed are Robert Skinner, a policy professor at the University of Calgary; Coleen Volk, the province’s deputy minister of energy; and Brian Topp, Notley’s former chief of staff.

Cenovus welcomed the premier’s announcement but said industry-wide cuts are needed, according to an emailed statement.

“While more pipelines and rail capacity are the long-term solution, we continue to believe that the only effective way to address wide differentials in the short term is through temporary industry-wide production cuts, which can only be mandated by government,” the company said.

Cuts totaling 200,000 to 300,000 barrels a day is a “viable idea” and would help all the companies, including the integrated oil producers who export more than they process in their own refineries, Tim Pickering, founder of Auspice Capital Advisors Ltd., said in a phone interview.

“It’s the only immediate, short-term solution,” he said.

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