Pipeline congestion holds Canada behind economic potential

Feb. 5, 2018
Where bottlenecks develop in oversupplied oil or gas markets, producers upstream of constriction suffer.

Where bottlenecks develop in oversupplied oil or gas markets, producers upstream of constriction suffer.

Bitumen producers in Alberta know this.

Although oil sands investment has slumped, production continues to rise as projects start and new phases come online.

The increase congests pipeline capacity, necessitates use of more-expensive rail transport, and expands the discount Western Canadian Select (WCS) blend chronically suffers against West Texas Intermediate crude (WTI).

On Jan. 24, reports the Globe and Mail newspaper, the discount was its highest in 4 years.

As WTI closed at $65.61/bbl, WCS languished at $38.11/bbl.

Aggravating distress are pipeline service curtailments and the inability of railroads to expand oil carriage promptly.

For producers and governments of their provinces, the widening commodity-value deficit represents hardship. They need more pipeline capacity to global markets.

Most-likely prospects for now are the Keystone XL project, revived by a newly supportive administration in the US, and Trans Mountain expansion, approved by the National Energy Board.

But Keystone XL keeps Canada dependent on US markets, which the former administration proved to be risky. Furthermore, Canadian crude fetches 25-30% less in the US than it would in Asia or Europe, according to a Fraser Institute study.

The Trans Mountain project would give 590,000 b/d more Albertan oil access to those markets but faces unyielding opposition in British Columbia and a delay of at least a year.

Interest has revived in the Eagle Spirit pipeline between Alberta and northern BC, which benefits from support of indigenous groups.

But that project collides with the federal government's pending ban on tanker traffic along the northern coast.

None of these impediments to realization of Canadian economic potential received mention in Liberal Prime Minister Justin Trudeau's Jan. 23 speech at the prestigious World Economic Forum in Davos, Switzerland, by the way.

Notoriously wary of pipelines and hydrocarbon energy, Trudeau mainly scolded corporations for putting "the pursuit of profit before the well-being of their workers" and said the Canadian workforce needs more women, more fairly treated.

(From the subscription area of www.ogj.com, posted Jan. 25, 2018; author's e-mail: [email protected])