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One of Canada’s largest oil companies is urging the Alberta government to intervene directly in the market to cut the province’s crude production and boost severely depressed prices.

Cenovus Energy Inc. chief executive Alex Pourbaix said the province is facing a “wholesale economic catastrophe” that justifies the government departing from free-market principles and ordering companies to reduce their production of oil.

Any move by Alberta to enact limits on the amount oil producers can send to market would mark a strategic shift in a province that has long promoted free enterprise and open competition among players in its most important sector. But some say the current industry crisis calls for emergency measures.

“We really are in the middle of a full-blown economic crisis,” Mr. Pourbaix said in a telephone interview from Calgary on Wednesday.

“I don’t take any pleasure in suggesting we should have government intervention, but we are dealing with a complete failure of the market.”

Oil companies in Alberta need to get initial regulatory approval for projects, but actual production is not regulated.

The industry has been reeling in recent months from the shortage of pipeline capacity, which has resulted in inventories building up in the province and prices slumping when compared with the leading North American benchmark, West Texas Intermediate (WTI).

The Keystone XL pipeline – which was approved by U.S. President Donald Trump in early 2017 – remains stalled as a result of court challenges in the United States. The federal Liberal government approved the Trans Mountain pipeline expansion project in late 2016, but is now trying to get it back on track after the federal court quashed the approval.

Western Canadian heavy crude is typically discounted about US$15 a barrel compared with WTI, but that discount has grown to more than US$40 this fall. And over the past two weeks, oil prices in general have been declining. With that recent drop in WTI, Alberta oil is now selling for less than US$15 a barrel.

The Alberta government is consulting with industry leaders and “not ruling out any options,” a spokeswoman for Premier Rachel Notley said Wednesday.

“The oil-price differential right now is absurd, and exactly why Premier Rachel Notley is fighting to build new pipelines and pushing Ottawa to step up and help fix the backlog in rail shipments,” Cheryl Oates, the Premier’s director of communications, said in an e-mail. Within the last month, Ms. Notley has urged the federal government to purchase rail cars that could be used for oil exports.

Mr. Pourbaix said the province, as the owner of the resources the companies are extracting, has the legislated authority to order them to cut their production. The power was used in the 1980s by then-premier Peter Lougheed during the province’s dispute with Ottawa over the National Energy Policy.

In a report released Monday, Calgary-based investment company Peters & Co. Ltd. said if heavy-oil discounts remain at US$40 through 2019, the province will lose $50-billion in economic activity and the provincial government will lose $5-billion in revenue. (The provincial government’s budget is roughly $50-billion.)

Cenovus has announced its own temporary production cuts of up to 50,000 barrels a day. However, the CEO said some competitors who have large refining operations are making significant profits from the depressed crude prices and therefore have little incentive to cut production.

While he did not mention company names, both Suncor Energy Corp. and Imperial Oil Ltd. own refineries that profit from lower-priced crude.

Suncor maintains that it has invested billions of dollars in Alberta to process oil sands bitumen and is now benefiting from that strategy.

The company opposes the government action Cenovus is urging.

"Government intervention in a market would send the wrong signals to the investment community regarding doing business in Alberta and Canada," Suncor spokeswoman Sneh Seetal said in an e-mail.

“We need to take a long-term view and allow the market to operate as it should. There are already indications that the market is working.”

Mr. Pourbaix did not give a precise estimate of how much production would have to be curtailed but noted the analyst reports put the figure at between 200,00 and 300,000 barrels a day.

Oil production from Western Canada is expected to average close to 4.5 million barrels a day this month, according to the National Energy Board. That’s up by some 350,000 barrels a day from the beginning of the year.

Mr. Pourbaix said he believes that price discounts will slowly shrink through 2019 as more rail capacity comes on stream and, late in the year, when Enbridge Inc. completes the expansion of its main export pipeline to the United States.

Asked whether Ottawa should take emergency measures to deal with the crisis, the Cenovus executive said the federal government should focus on getting the Trans Mountain pipeline expansion back on track and completed as quickly as possible.

The Peters & Co. Ltd. report said producers have already cut production by some 200,000 barrels a day for November and December.

“The Alberta government has a lot at stake with the wide differentials and should be motivated to improve the situation in the near term,” it said.

Various companies – led by Imperial Oil – are planning to increase crude-by-rail capacity in the coming months. But the Peters & Co. report said expectations of an additional 150,000 barrels a day by the middle of next year are likely overly optimistic.

However, the Alberta government would face enormous challenges if it attempted to take up Cenovus’s call for direct intervention, said Warren Mabee, director of Queen’s University’s Institute for Energy and Environmental Policy. Companies that are profiting from the lower crude prices would oppose the action, as would some producers who might feel they were being shortchanged by the government, Mr. Mabee said.

At the same time, any provincial action to reduce production and prop up prices would likely trigger a response from the United States, where refineries and consumers have been the beneficiaries of the lower prices, he said. Mr. Trump this week criticized Saudi Arabia for planning to cut production in response to falling global crude prices.

Under the current North American free-trade agreement, the intervention suggested by Cenovus could trigger retaliation from the Americans, Mr. Mabee added.

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