TORONTO (Reuters) - Canada's Cenovus Energy Inc CVE.TO on Thursday said it would support any further moves by the oil-rich province of Alberta to curtail production as the industry scrambles to head off a storage crunch.
The endorsement comes as Alberta Premier Jason Kenney said the western Canadian province is open to joining any potential global pact to reduce a glut of crude production.
Storage levels in Alberta, home to the world’s third-largest crude reserves, have ballooned to around 30 million barrels and are fast approaching capacity of about 40 million as producers park crude to cope with plummeting demand, according to Royal Bank of Canada (RBC) analysts.
The Canadian industry could be forced to curtail up to 1.7 million barrels a day, or a third of the country’s total production, as major U.S. refineries throttle output and storage capacity runs out, the RBC analysts said Thursday.
Global crude demand has fallen by a third or 30 million barrels per day in the past few weeks as some 3 billion people have been put in lockdown to slow the spread of the coronavirus.
“We would support further mandated curtailment if government decided it was necessary to prevent storage from getting near full capacity,” Cenovus spokeswoman Sonja Franklin said.
The company earlier on Thursday said it would reduce its full-year capital spending by another C$150 million ($106 million) and suspend its dividend.
Kenney’s United Conservative Party government has steadily eased production curtailments imposed a year ago to drain a glut of oil in storage that built up because of congested pipelines.
Kenney on Thursday said he had spoken with U.S. officials about possibly coordinating North American production cuts. He had previously said there was no point forcing producers to curtail additional output.
“Producers are seeing the economic incentives to shut-in today and so we expect them to be proactively making decisions to pull back ahead of a potentially full storage scenario,” said Tudor, Pickering, Holt & Co analyst Matt Murphy.
Amid the crunch, some are looking to park unwanted crude on rail cars.
“They’re storage tanks on wheels,” said John Zahary, chief executive of Calgary-based Altex Energy Ltd, which is talking to clients about the option.
“The question is how quickly do you fill them and how quickly do you unfill them,” he said.
Additional reporting by Rod Nickel in Winnipeg; Editing by Peter Cooney and Alistair Bell
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