Alberta's premier announced Sunday night that she is imposing an industrywide 8.7 percent cut in oil production for the Canadian province to deal with a storage glut that has hurt prices for Alberta oil.
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Premier Rachel Notley said output will be lowered 325,000 barrels a day in January because of shipment problems that she blames on a lack of pipelines. The government said the reduction will be evaluated monthly.
Alberta produces 3.7 million barrels a day, but that is 190,000 barrels more than can be shipped. About 35 million barrels is sitting in storage, and the oversupply results in the province's crude selling for around $10 a barrel, a fraction of what other world producers get.
Notley said Canada's economy is losing $80 million Canadian (US$60 million) a day. The Alberta government believes the cut will increase the price per barrel by four dollars a barrel by spring
"I want to be clear. This is a short term measure," Notley said. "We are essentially giving our oil away for free ... this is not sustainable."
Canada has the world's third-largest oil reserves and is the top source of foreign oil for the U.S.
Alberta needs new pipelines to expand its export options for its growing oil sands production. At present, 97 percent of Canadian oil exports go to the U.S., which is awash with oil.
The premier has already said the province will buy as many as 80 locomotives and 7,000 rail tankers, expected to cost hundreds of millions of dollars, to move the province's excess oil to markets, with the first shipments expected in late 2019. But she has said that rail cars, new pipelines and increasing domestic refining capacity would not bring relief soon enough.
Notley called the production cut a difficult decision because there is not consensus in the industry.
Cenovus Energy proposed a reduction last month and the idea has been supported by opposition politicians in Alberta, including United Conservative Party leader Jason Kenney. However, the Imperial and Husky companies said Friday that they opposed non-voluntary production cuts but supported the rail investments because that could help improve market access.
A number of proposed pipelines have been delayed or rejected.
Canada's Federal Court of Appeal halted the contentious Trans Mountain pipeline expansion that would nearly triple the flow of oil from the Alberta oil sands to the Pacific Coast — a setback that came just as the federal government bought the project to help ensure it gets built amid strong environmental and aboriginal opposition in British Columbia. The court ordered the country's National Energy Board to redo its review of the pipeline.
A U.S. federal judge also blocked a permit for construction of the Keystone XL oil pipeline from Canada and ordered officials to conduct a new environmental review.
The federal Canadian government nixed Enbridge's proposed Northern Gateway pipeline to the Pacific Coast, and TransCanada's Energy East pipeline to the Atlantic Coast is also not going ahead.