Never Say Goodbye, Part 4 - A Rebound in Canadian Crude-by-Rail May Not Come Until 2021

In May of this year, Western Canada’s oil production shut-ins due to weak demand and poor pricing were estimated to have peaked near 1 MMb/d, resulting in a 20% drop from the near-record production levels reached only a few months earlier. The magnitude of the production fall in such a short period of time caused a significant drop in the utilization of pipelines that transport crude oil from Alberta to other parts of Canada and the U.S. All of a sudden, pipelines that had been heavily rationing their capacity over the past couple of years to accommodate steadily rising production suddenly had ample spare capacity. With those supplies now on the road to recovery, pipelines have begun to fill some of that extra space and are moving toward rationing capacity once again. Today, we continue our review of Western Canadian production and takeaway capacity with a look at how this spring’s production cuts affected the region’s biggest pipelines.

Western Canadian producers have been deeply impacted by lower crude oil prices and the demand-destroying effects of COVID-19. This past spring, oil production in the vast region dropped by an estimated 940 Mb/d, or as much as 20% from the record highs earlier this year. Taking that much production offline helped in at least one sense: it eased long-standing constraints on takeaway pipelines like Enbridge’s Canadian Mainline, TC Energy’s Keystone Pipeline, and the government of Canada’s Trans Mountain Pipeline. Production has been rebounding this summer, however, and there are indications that pipeline constraints may be returning and apportionment of uncommitted space on some pipes may again become a persistent issue. Today, we continue a review of production and takeaway capacity in Alberta and its provincial neighbors with a look at apportionment trends on the biggest pipelines.

The oil price meltdown earlier this year and demand destruction wrought by COVID-19 forced Canadian crude oil producers to throttle back output. At the height of the cutbacks in May, almost 1 MMb/d of oil supply had been curtailed due to uneconomic prices and/or lack of downstream demand. With oil prices and demand having staged a partial recovery in the past few months, production is rising off the lows and producers are talking about even higher supplies in the months ahead, with the prospect of returning to pre-pandemic levels. Today, we begin a short series that reviews the recent production pullback and discusses how producers are positioning themselves for a resurgence of their oil supplies.