Page 5 - NorthAmOil Week 27

NorthAmOil COMMENTARY NorthAmOil
his government is seeking to o oad them to the private sector. (See NorthAmOil Week 26)
“We are very interested in taking on rail capacity,” CNRL’s Laut told the Financial Post on the sidelines of the TD Securities conference. “We are seriously participating in the process.”
Laut added that he did not know when the government would award the contacts, but said CNRL had responded to a request for proposals (RfP).
Indeed, CNRL is widely considered to be a likely buyer – potentially one of several, as the government has said there is potential to break up the contracts among several buyers. CNRL’s need for takeaway capacity has risen following its purchase of Devon Energy’s oil sands assets for CAD3.8bn ($2.9bn) in May.
Not all major players are as keen, though, with Cenovus saying it would only look at the contracts if there was a bargain on o er. is is despitethefactthatCenovusownsarail-loading facility near Edmonton, and is in the process of ramping up its crude-by-rail capacity to 100,000 bpd by the end of 2019.
e o oading of the crude-by-rail contracts, when it comes, will likely be a major step towards the end of production curtailments. Currently, the Alberta government requires producers to limit their output by a combined 175,000 bpd. e UCP government has said it will ease the curtailment by a further 25,000 bpd in August, allowing the province to produce 3.74 million bpd in total that month. This marks a steady increase since the production cuts were first imposed in January, when the total was limited to 3.56 million bpd.
What next?
Negotiations between producers and the Alberta
government are ongoing. But while the hand- ing over of crude-by-rail contracts is expected to ease the way towards the end of output cuts, the flip side is that the curtailments are cur- rently a disincentive for would-be buyers of the contracts.
“Companies would be more than willing (to take the rail leases). It’s just right now I could go sign a rail contract, and I can’t produce an incre- mental barrel – so why would I do it?” Suncor’s Little told media on the sidelines of the TD Secu- rities conference.
Alberta Minister of Energy Sonya Savage, meanwhile, has warned that it is too early to know what industry conditions will be like later this year. She acknowledged that linking excess production to increased rail capacity could be a possibility, but said the government was wait- ing to see what happens with its push to sell its crude-by-rail contracts first. “There’s been a greatinterestin[thecontracts],”shesaid.
And as negotiations continue, Alberta’s lead- ing producers appear to be more con dent over the prospect of a looming resolution.
“I think that we’re within rounding distance of being able to literally get all of the production to market with the excess rail that’s available and get a fair price for it, and I think that’s the objec- tive that the companies working together with the government is focused on,” Little said.
As progress on major new pipeline projects out of Alberta remains slow and marred by delays, it is no surprise that there is so much focus on crude-by-rail. Kenney has vowed to prioritise new pipeline capacity as well, but this is a longer-term goal. In the shorter term, the handling of the crude-by-rail issue could prove to be an early indication of how likely Kenney is to meet industry expectations.™
The of oading of the crude-by-rail contracts, when it comes, will likely be a major step towards the end of production curtailments.
Week 27 11•July•2019 w w w . N E W S B A S E . c o m
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