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October 31, 2019 12:15 PM, EDT

Alberta Loosens Oil Output Limits With Railroad Allowances

oil cars Oil tankers sit at a rail yard. (David Paul Morris/Bloomberg)

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Alberta took a step toward easing the pain of its crude-production caps by allowing oil companies to exceed output limits if they ship the extra production by rail.

The special production allowances to be implemented in December will be based on each producers’ average rail shipments during the first quarter of this year, according to a release posted on the government’s website.

The move is a boon to explorers constrained by the curtailment program imposed this year to stave off a collapse in western Canadian heavy crude prices brought on by a lack of pipeline space. The program boosted prices so much that more-costly rail shipping became unprofitable, hurting the province’s ability to drain the supply glut.

“This is a very significant development for the industry and the province, and this sets the stage for the government to remove itself from the Alberta crude markets,” Suncor Energy Inc. Chief Executive Officer Mark Little said during a conference call with analysts after the allowances were announced.

Suncor and other drillers had lobbied for the rail allowances, saying they could ship more crude without exacerbating the pipeline shortage.

“The special allowance program will protect the value of our oil by ensuring that operators are only producing what they are able to move to market,” Energy Minister Sonya Savage said in the statement. “Pipeline delays ultimately have constrained market access and dampened investment in our oil sector. This program will lead to more production and increased investment, benefiting industry, our province’s bottom line, and, ultimately, Alberta taxpayers.”

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