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Alberta intends to buy rail cars to increase the supply of crude oil

Alberta Prime Minister Rachel Notley will speak in Ottawa on November 28, 2018.

Adrian Wild / Canadian Press

At the beginning of the new year, Alberta plans to buy rail cars to transport an additional 120,000 barrels of oil per day from the province, as she believes it needs to cut production to reduce oversupply, which led to prices for Western Canadian oil prices, basement levels.

Premier Rachel Notley is under pressure to find alternatives for delivering Alberta oil due to the lack of power in the pipelines. In addition to increasing the volume of rail wagons, she is considering providing incentives, including interruptions in future royalty payments, to companies that are willing to cut production now. She even looks at mandatory production cuts across the industry. Such measures will lead to a reduction in supply in order to increase the market price of oil.

In her speech in Ottawa on Wednesday, Ms. Notley called on the federal government to support the progress of her government in buying raw cars and locomotives, but said that the province would act on its own, if necessary, and would be close to concluding such a deal. According to her, oil trains will eventually add 120,000 barrels per day of export, surpassing the current 350,000 barrels per day of existing rail capacity.

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“For investments, this matters, not only from the most immediate point of view, but also as a hedge against further pipeline delays,” said the prime minister. “The federal government should be at the table. From their absence there is no excuse.

Ms. Notley says that the oil price depression is happening because Canada deliberately holds the economy of Alberta and hostages in the economy of Canada, failing to build new pipelines.

In a letter sent nearly three weeks ago, Ms. Notley called on Prime Minister Justin Trudeau to respond with a sense of crisis to the deep decline in oil prices in Alberta and to provide financial support for her plan to buy rail cars.

In response to a question about the request for funding on Wednesday, the Prime Minister’s office sent questions to the Department of Natural Resources. Amarjit Sohey, a spokeswoman for the minister of natural resources, said federal officials are working with colleagues from Alberta to analyze options, including Ms. Notley's proposal on rails, to resolve the crisis. “We are focused on ensuring that every barrel of Alberta’s oil gets the full cost,” Vanessa Adams said in an e-mail statement.

As a result of the lack of pipeline space and the growth of reserves in Alberta, prices for West Canadian oil fell sharply compared to the key North American benchmark of the West Texas Gap (WTI), which fell sharply from the beginning of October to the close of $ 50.30 a barrel. Western Canadian Select – which trades at a discount of $ 41 per barrel in December – showed that Tuesday’s spread dropped to $ 33.50 for the January delivery, according to NetEnergy, a trading company for Calgary. Edmonton light oil, which is usually sold at a small premium to WTI, was sold on Wednesday at a discount of $ 25.25, according to NetEnergy.

The leader of the United Conservative Party of Alberta, Jason Kenny, raised the heat on Wednesday at the Prime Minister of the New Democratic Party, calling on her government to impose a reduction of 200,000 barrels per day on 13 major producers, freeing small companies from politics. These cuts will exceed the estimated 200,000 barrels per day in cuts already announced by several companies operating in oil sands, including the giant Cenovus Energy.

“I'm a free market conservative,” Mr. Kenny told reporters in Edmonton. “I believe that government intervention in the markets should be avoided, so I was first against the idea of ​​mandatory reductions when it was first placed a few weeks ago. But after extensive consultations, I now believe that action is needed. ”

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The Alberta government is still evaluating whether to cut production or create incentives to achieve voluntary cuts. He will announce his plan "within the next week or so," said Ms. Totley. She confirmed that the options include some form of incentive associated with royalty payments, but added that there are many other approaches that are being considered.

“The industry itself is very complex; the players are organized differently, and the consequences for each of them are different, as well as the royalty regime under which they operate, "she said." So we have to look at the whole picture. "

The prime minister argued that additional rail capacity would raise Western Canadian oil prices by $ 4 per barrel and pay for themselves over the next few years before the proposed expansion of Trans Mountain pipeline is completed. And it will serve as insurance against further delays in the pipeline, she said.

In the House of Commons, an opposition opposition party began a medium-level debate on Wednesday evening, saying that the liberal government did not respond to the crisis that spreads from Alberta and affects the economy of the whole country.

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