Despite renewed optimism for pipeline projects, a history of delays in the review process raises the possibility of additional price volatility and loss of economic value for Western Canadian producers
Entitled Pipelines, Prices and Promises: The Story of Western Canadian Market Access, the Canadian Oils Sands Dialogue report from
Absent new pipeline takeaway capacity, Canadian crudes will face limitations from the existing pipeline infrastructure as Western Canadian volumes continue to build, the report says.
“The need for new pipelines departing
The report notes that transportation costs are a key reason why oil prices differ between regions. While quality differences—such as light versus heavy oil—result in price differences between different types of crude oils, transportation costs contribute to price differences between regions for crude of the same quality.
Capacity constraints in the past have contributed to price volatility, a rise of crude-by-rail shipments and a loss of economic value for Western Canadian producers, the report says. During one such period of constraint—a five- month period starting
A survey of recent major pipeline proposals conducted for the report found that the length of the pipeline review process (from first application through the end of 2016) has averaged more than five years per project, creating uncertainty for project proponents and western Canadian producers alike.
Although the recent approvals of Keystone XL by the
If four major pipeline projects (Alberta Clipper Expansion, Energy East, Keystone XL and Trans Mountain Expansion) advance as currently proposed, they could add 2.9 million barrels per day of new capacity between 2019 and 2022, enough to move Western Canadian pipeline takeaway capacity from shortage to surplus.
The report notes that, although
As none of the currently proposed pipeline would come online prior to 2019, a resurgence of crude-by-rail shipments out of
“Greater price discounts for Western Canadian crudes would return with an increase of crude-by-rail shipping,” Birn said. “Such discounts are likely to be more modest than in previous years as past investments in crude-by-rail infrastructure—such as loading terminals and railcars—would pay off. But the fact remains that you will still see increased price volatility and loss of value for producers until adequate pipeline capacity is restored.”
Pipelines, Prices and Promises: The Story of Western Canadian Market Access and all other Oil Sands Dialogue research by