Suncor expects Alberta oil cuts to end early as rail shipments slow

WINNIPEG, Manitoba (Reuters) - Suncor Energy Inc, one of Canada’s biggest oil producers, expects the province of Alberta to end mandatory production curtailments ahead of schedule as they have caused a price boost that makes rail shipments uneconomic, Chief Executive Officer Steve Williams said on Wednesday.

FILE PHOTO - A Suncor refinery is seen in Sherwood Park, near Edmonton, Alberta, Canada November 13, 2016. REUTERS/Chris Helgren

Such unintended consequences are happening faster than the Alberta government likely expected, and it should now plan for a “soft exit” from curtailments that is fair to producers, Williams said on a quarterly conference call.

“The rail economics are seriously damaged, and a lot of the rail movements are stopping or have stopped,” he said. “That’s going to have the opposite impact than what the government wants.”

Alberta curtailed 325,000 barrels per day (bpd) in January to drain a glut of crude in storage that was caused by congested pipelines. The output cuts boosted Canadian oil prices from record lows last year, but Suncor and other producers that have ample pipeline space and refineries say the sharp correction harmed their integrated businesses.

The curtailments were applied fairly and saved jobs in the sector, said Mike McKinnon, spokesman for Alberta’s energy minister. He said the government will monitor storage levels and adjust production levels as needed.

Williams said that the case for forced curtailments is likely to abate with seasonal maintenance shutdowns by oil producers during the second quarter, and with Enbridge Inc’s Line 3 expansion likely to start filling for start-up later this year.

“You’re going to see the pressure start to come off,” he said.

Suncor’s shares turned positive after Williams’ remarks, and were up 0.6 percent at C$43.77 on Wednesday afternoon in Toronto.

Alberta eased the curtailments modestly for February and March. Its plan is to reduce the curtailments further to an average of 95,000 bpd through the end of 2019 once storage levels are sufficiently reduced.

Suncor’s comments echo those of rival Imperial Oil Ltd, which said last week that it is ending nearly all crude by rail shipments because of the price impact of the curtailments.

Late on Tuesday, Suncor reported a quarterly loss due largely to a one-time charge related to how it accounts for inventory.

Reporting by Rod Nickel in Winnipeg, Manitoba; Editing Grant McCool and Matthew Lewis