The Alberta government Sunday announced a cut of 325,000 b/d off the province’s oil production as of Jan. 1, 2019, to try boosting severely depressed prices blamed on a glut backing up behind stalled pipeline projects.

“We’re giving it away for next to nothing,” said Alberta Premier Rachel Notley in a national broadcast across Canada. “Every Albertan owns the energy resources in the ground, and we have a duty to defend those resources.”

A government statement added that the provincial treasury would gain C$1.1 billion (US$880 million) next year in royalties and taxes if the production cut hits its target of raising the average Alberta oil price by US$4.00/bbl.

The “differential,” or discount, off the North American benchmark, West Texas Intermediate (WTI), inflicted on the heavy crude majority of Alberta output deepened to US$52/bbl on the Canadian market’s darkest day in October, provincial records show.

The National Energy Board’s scorecard of monthly averages confirms a wide price gap has become entrenched. For all of October, the Alberta discount worked out to US$44.90/bbl, or 63% off US$71.44 for WTI.

While November figures have yet to be fully collected, all concerned say the deep differential persisted as WTI dropped toward a low US$50/bbl. Notley indicated Alberta heavy crude prices have sunk toward US$10/bbl. Total revenue losses are estimated to be C$80 million (US64 million) per day.

The premier predicted the production cut would work out to 8.7% of Alberta production capacity forecast to reach 3.7 million b/d as of January 2019.

Notley described the market intervention as temporary. Her government predicted the cut would be eased back during 2019 to 95,000 b/d if markets respond by shrinking the price discount.

As the production cut takes effect, the Alberta government will begin increasing deliveries by making a start on buying a planned provincial fleet of 7,000 railway oil tank cars and up to 80 locomotives, capable of carrying 120,000 b/d.

The combination of the production cut and new rail delivery is forecast to reduce a 35 million bbl glut of Alberta oil currently stuck in storage, or about double the average backlog when pipeline capacity is available.

Pipeline projects remain obstructed by environmental, community and aboriginal protests. Notley observed that construction currently under way to restore previous service on an aged Enbridge line falls far short of demand growth in the industry, which has booked 1.4 million b/d of new capacity on the blocked Trans Mountain expansion and Keystone XL export proposals.

The Alberta Energy Regulator will enforce the oil cut, using an 80-year heritage of authority derived from provincial resource ownership in the Canadian constitution and encyclopedic knowledge of industry operations. The smallest firms will be spared because the province will exempt the first 10,000 b/d of production from reduction.

A provincial canvass of industry opinion on the production cut exposed divisions but the official legislature opposition, the United Conservative Party, proposed an even deeper reduction by 10 per cent.