The recent collapse in the price of Western Canadian Select (WCS) versus West Texas Intermediate (WTI) and the 12-day shutdown of the Keystone Pipeline in November 2017 put the spotlight on a major issue: Alberta production is rising, pipeline takeaway capacity out of the province has not kept pace, and pipes are running so full that some owners have been forced to apportion access to them. Storage and crude-by-rail shipments have served as a cushion of sorts, absorbing shocks like the Keystone outage and the apportionments, but with more production gains expected in 2018-19, that cushion seems uncomfortably thin and unforgiving. With all this going on, we decided that it’s time for a deep-dive look at Western Canadian production, takeaway options and WCS prices — the whole kit and caboodle. Today, we begin a new series on Canadian crude and bitumen production, the infrastructure in place (and being planned) to deal with it, and the effects of takeaway constraints on pricing.
Western Canadian crude oil production has grown from about 2.5 MMb/d in 2011 to almost 4.0 MMb/d by the end of 2017. Despite these gains — most of which came from Alberta’s oil sands region — times are tough in the Canadian oil patch. While other North American producers have been enjoying the gradual rise in WTI pricing over the past year, Canadian producers have suffered through declining prices for WCS, the Canadian heavy blend crude benchmark — especially over the past few months. Figure 1 shows that WCS maintained a pricing discount to WTI of around $10/bbl through most of 2017 (all in U.S. dollars). Beginning in late summer, however, the WCS discount to WTI began to grow, initially to around $11-12/bbl during September and October, and then crashing during November and December to around $25/bbl. What caused this recent tumble?