Canadian Natural Resources makes case for mandated oil output cut
Canada’s oil industry woes could be temporarily fixed with a production cap, but could be completely solved if the rules of the game were adjusted, according to Canadian Natural Resources Ltd.
“It’s a very simple solution to get this. I think a temporary curtailment would fix the problem very quickly,” Canadian Natural (CNQ.TO) Executive Vice-Chairman Steve Laut told BNN Bloomberg in an interview on Tuesday.
“Secondly, you need to have the nomination or apportionment rules modified and be enforceable because that is partly the cause of what’s a dysfunctional market,” he added. “The rules have lots of gaps in [them] and allow certain players to exploit those rules and extract value from Alberta producers and Alberta citizens and Canadian citizens.”
At issue for Laut is what he sees as a bending of the apportionment rules by some larger oil companies, booking more pipeline space than is needed, resulting in "air barrels" being placed onto the province’s already minimized pipeline capacity.
“If you look at apportionment in July, [it] was 45 per cent and the differentials were about US$25 for heavy oil. In December, apportionment is 45 per cent and the differential is US$45,” Laut said.
“The same physical dynamics are going on, the only difference is the intermediary players have figured out how to play the game and everyone is nominating even more and playing the game to widen the differential.”
However, pipeline operator Enbridge Inc. refuted Laut’s claims that a change would solve the industry’s backlog.
“The Enbridge Mainline system is essentially full,” an Enbridge spokesperson said in an email to BNN Bloomberg. “There is no material capacity to be gained by changing the apportionment and supply verification procedures.”
“We’re open to discussing possible actions however there is no consensus among shippers on whether the apportionment and supply verification procedures require adjustment,” the company added.
Many of Canada’s major energy players have been calling for action as the price gap between Western Canadian Select and the North American benchmark West Texas Intermediate continues to hover between US$35 and US$40 per barrel.
Last week, Cenovus Inc. (CVE.TO) Chief Executive Alex Pourbaix urged Alberta to introduce a production cap on the province’s oil producers. Alberta Premier Rachel Notley appointed three envoys on Monday to work with the federal government and industry players on narrowing the WCS discount, a move Laut said Canadian Natural supports.
Laut said that Enbridge Inc.’s goal of having its Line 3 replacement pipeline up and running in 2019 should alleviate the steep discount long-term, but in the interim, intervention is needed to fix a market he repeatedly referred to as “dysfunctional.”
“The market as we see it today is broken and dysfunctional,” Laut said. “So, there’s a role for the government to play to bring order back to the market.”
“This is costing $100 million a day for Canadians that could be used to build hospitals, help schools, build roads.”