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?
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About the song
“The Shape I’m In” is among the most popular songs by The Band, the Canadian-American roots rock group that was formed in Toronto in 1968. The song, written by Robbie Robertson, is from The Band's 1970 third album, entitled Stage Fright. Richard Manuel sings lead vocals and plays the unique Clavinet keyboard part of the song. “The Shape I'm In” was a featured song in many of The Band's live performances, and also appears on their live albums Rock of Ages, Before the Flood and The Last Waltz.
The Band ended its touring career in 1976 in a performance filmed for Martin Scorsese’s highly praised documentary, “The Last Waltz.” The Band entered the Canadian Music Hall of Fame in 1989, and the Rock and Roll Hall of Fame in 1994. Rolling Stone Magazine ranked them #50 on its 100 Greatest Artists of All Time list in 2004. In 2008, they received a Grammy Lifetime Achievement Award.
