CALGARY — Suncor Energy Inc. is calling on the Alberta government to make an earlier-than-planned exit from the oil curtailment program it enacted on Jan. 1 because of its “unintended consequences.”
CEO Steve Williams says the program designed to draw down crude storage and free up space on export pipelines has worked too well, reducing local price discounts to the point that shipping crude by rail into the United States is no longer financially sustainable.
News release: Suncor Energy reports fourth quarter 2018 results https://t.co/7ZDCGoTMs8
— Suncor (@Suncor) February 6, 2019
The same charge was levelled last week by Imperial Oil Ltd. CEO Rich Kruger, who said his firm would cut its crude-by-rail shipments to near zero this month, a major setback in oil movements as it had been responsible for about half of Canada’s rail shipments in December.
On a conference call to discuss Suncor’s fourth-quarter results, Williams said the production cuts are also having a long-term negative affect on investor confidence in Canada.
The criticism came as Suncor reported a $280-million net loss in the fourth quarter of 2018, in part due to the very price discounts the curtailments were designed to reduce.
Calgary-based Suncor said its average realized price in Canadian dollars for raw bitumen in the quarter was just $7.96 per barrel, versus $42.80 in the fourth quarter of 2017. Its average realized price for upgraded synthetic crude was $46.07, compared with $70.55.
“If you look at what’s happened, the differential corrected — and over-corrected — very quickly and the unintended consequence of that is … rail economics are severely damaged and a lot of the rail movements are stopping or have stopped,” said Williams.
“That’s going to have the opposite impact to what the government wants.”
The difference in price between Western Canadian Select bitumen-blend oil and New York benchmark West Texas Intermediate widened to as much as US$52 per barrel in October, but shrunk to single digits in December and January.
In order to support the higher cost of rail over pipelines, the differentials need to be higher than US$15-$20 per barrel, Imperial says.
Companies in this article: (TSX:SU, TSX:IMO)
The Canadian Press