Newspaper article The Canadian Press

Lack of Pipeline Capacity Costing Canadian Oil Producers Billion: Report

Newspaper article The Canadian Press

Lack of Pipeline Capacity Costing Canadian Oil Producers Billion: Report

Article excerpt

Oil bottlenecks costing Canada billions

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OTTAWA - Canada lost out on about $25 billion in oil revenues last year due to pipeline and production bottlenecks and is expected to lose $15 billion a year going forward until it deals with its infrastructure deficit, a new CIBC report says.

CIBC economists Avery Shenfeld and Peter Buchanan said the record price discount received by Western producers of heavy oil -- mostly bitumen -- is no longer the issue it once was, but Canada will continue to lose big time until it permanently solves its pipeline deficit.

"Refinery/upgrader restarts, and a heavier reliance on flexible but costlier to operate 'rail pipelines,' have seen a fairly dramatic improvement lately," the report states.

"Notwithstanding such improvements, Canada continues to face a notable long-term challenge shipping its oil to market. The failure to invest in needed transport infrastructure could still prove costly for Canadian producers, governments, and the economy, to the extent that investment plans are delayed or scaled back."

Western Canadian heavy oil, which represents about 45 per cent of total production, sold at a discount of as much as $43 a barrel during the winter from the landlocked Western Texas Intermediate price, which itself suffers a discount from North Sea oil, known as Brent.

Because of recent improvements, the differential to WTI has since narrowed considerably to about $14 a barrel, near the $17 historic average.

CIBC calculated for 2012, when the price gap began widening, the difference wound up costing Canada about $25 billion in lost opportunity revenues, and will likely cost the economy another $20 billion this year. Going forward, assuming the gap returns to historic levels, the economists say Canada will lose out on about $15 billion a year.

That's not as bad as last year, but still represents about five per cent of Alberta and Saskatchewan's combined gross domestic product.

"It's a narrowing gap, but it means we were facing crippling costs last winter and its still money left on the table," explained Buchanan. "We're not getting the money for our oil we could get if we had cost-effective, unimpeded access to global markets."

Both the federal and provincial governments have cited lower commodity prices for adding pressure to their fiscal projections, particularly with depressing expected tax and royalty revenues.

But Robyn Allan, an independent economist who has given testimony to the National Energy Review Panel on the Northern Gateway proposal, questions whether lack of pipeline capacity would eliminate the discount.

She argues the gap has more to do with the lower quality of crudes being shipped and transportation costs than capacity.

"Diluted bitumen will sell at a deeper discount no matter how much excess pipeline capacity exists," she said in an email response. …

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