With Western Canadian crude oil production rising, available pipeline takeaway capacity shrinking and crude-by-rail volumes rebounding, midstream companies are ramping up their efforts to get long-planned pipeline projects built. But that’s no easy task. Virtually every plan to add new takeaway capacity out of Alberta — Canada’s #1 energy-producing province — continues to face regulatory hurdles, and it remains to be seen which of the pipeline projects will be completed, and when. We can’t just throw up our hands, though, and say, “Who knows?” With pipeline constraints out of Western Canada worsening by the month and having profound negative effects on the price of Western Canadian Select (WCS), there’s real value in reviewing in some detail what these pipeline projects are up against. Today, we discuss what’s being planned on the takeaway front and where these projects stand.
Posts from Peter Howard
Producers in the Western Canadian Sedimentary Basin (WCSB) are in a bind. Crude oil output in the WCSB has risen by more than 50% over the past seven years to about 4 MMb/d and is expected to increase to 5 MMb/d by the mid-2020s. But there has been only a modest expansion of refinery capacity within the region and pipeline capacity out of the WCSB, and lately takeaway constraints have had a devastating effect on the price relationship between benchmark Western Canadian Select (WCS) and West Texas Intermediate (WTI). What’s ahead for WCSB producers and WCS prices? Today, we continue our series on Western Canadian crude and bitumen markets, this time focusing on WCSB refinery capacity and existing pipelines out of the region.
Crude oil production in the Western Canadian Sedimentary Basin (WCSB) has risen by more than 50% over the past seven years to about 4 MMb/d, driven by new projects and expansions in the oil sands of Alberta. And while growth has slowed since the 2014-15 downturn in crude oil prices, oil sands output is expected to continue climbing — particularly over the next year as the new, 194-Mb/d Fort Hills project ramps up toward full operation. Most forecasts put total WCSB production at near 5 MMb/d by the mid-2020s. But while Western Canadian crude oil supply has been rising, there has been only a modest expansion of pipeline capacity out of the region, and lately takeaway constraints have had a devastating effect on the price relationship between benchmark Western Canadian Select (WCS) and West Texas Intermediate (WTI). Today, we continue our series on Canadian crude and bitumen production, existing and planned pipelines, and the effects of takeaway constraints on pricing, this time focusing on the supply side of the story.
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.