12/02/2018 20:35 EST | Updated 12/03/2018 14:56 EST

Alberta Premier Rachel Notley Orders Oil Production Slashed To Fight Price Crisis

The mandated cut ends on Dec. 31, 2019.

Government of Alberta Flickr via Creative Commons
Alberta Premier Rachel Notley announces a mandatory cut in oil production.

EDMONTON — Alberta Premier Rachel Notley is ordering a mandatory cut in oil production to deal with a storage glut and price crisis that is costing Canada an estimated $80 million a day.

"I want to be clear. This is a short-term measure,'' Notley said on Sunday. "We are essentially giving our oil away for free ... this is not sustainable."

Notley said production of raw crude oil and bitumen will be reduced by 8.7 per cent — or 325,000 barrels per day — in January because of shipment problems that she blames on a lack of pipelines. That figure is expected to shrink as the glut of oil in storage is addressed.

Alberta produces 3.7 million barrels a day, but that's 190,000 barrels more than can be shipped.

About 35 million barrels is sitting in storage, and the oversupply results in the province's crude selling for around $10 a barrel, a fraction of what other world producers get. Canada has the world's third-largest oil reserves and is the top source of foreign oil for the U.S.

The mandated cut ends on Dec. 31, 2019.

We must act immediately.Alberta Premier Rachel Notley

Notley says the action is necessary to reverse the widening price differential that she says could cause further harm to Alberta's economy if not addressed immediately.

"Every Albertan owns the energy resources in the ground and we have a duty to defend those resources," said Notley. "But right now they're being sold for pennies on the dollar.

"We must act immediately."

The announcement is expected to narrow the differential by at least $4 per barrel and add an estimated $1.1 billion to government revenues in 2019-2020.

Watch: Alberta Premier Rachel Notley's announcement. Story continues below.

The Opposition United Conservatives and the centrist Alberta Party had already called for the production cut. Notley thanked them both in her speech.

Opposition United Conservative Leader Jason Kenney said Notley made the right decision.

But he said Notley's government has played a role in creating the problem by not pushing back as the federal government cancelled the Northern Gateway pipeline to B.C. and introduced legislation that industry leaders say will make it more difficult to get oil megaprojects approved.

"Many of these policies (were) supported either by acquiescence or actively by the NDP government,'' said Kenney. "That's one of the reasons why in the past week we've been giving away our oil.''

They had an opportunity early to do something and they didn't.Stephen Mandel, Alberta Party leader

Alberta Party Leader Stephen Mandel said the government was warned in the spring that this crisis was coming, and should have acted sooner.

"They dragged their feet. They had an opportunity early to do something and they didn't,'' said Mandel.

"It's frustrating to me to see so many people losing their jobs as a result of this incompetence.''

Industry feelings prior to the announcement had been mixed.

Cenovus Energy proposed the idea of a production cut last month. However, Imperial and Husky said Friday they remain opposed to involuntary production cuts.

With files from Associated Press