Alberta allows rail exemption for some curtailed output

Canadian heavy crude producers will be able to exceed government-mandated production limits if they ship the additional supply by rail under a new deal approved by Alberta's government.

Alberta enacted output limits in December 2018 amid soaring congestion levels on key long-haul export pipelines that had caused steep price discounts for Western Canadian Select (WCS) crude at the Alberta logistics hub at Hardisty. Alberta has set that limit at 3.81mn b/d for December output.

Under the new regime unveiled today, producers that ship their crude by rail will be given special production allowances permitting them to produce at levels over the curtailment limit. The allowances will be based on an operator's average rail shipments during the first quarter of 2019, Alberta said in a release.

The special production allowance will take effect for the December production month and will be offered through an simple application process, Alberta said. Volumes moving under the rail allowance cannot be nominated for pipeline shipment, it said.

Alberta has also been in negotiations to transition C$3.7bn ($2.8bn) worth of crude-by-rail contracts signed by the previous provincial government to private industry. There has been no word from Alberta on how that process will unfold, with about 4,400 railcars potentially moving from government to private hands.