Canada won’t need new pipeline capacity to carry tar sands/oil sands bitumen for at least another decade, according to a December 2015 memo to the federal deputy minister of finance.
“The low price environment has led to oil production forecasts being revised downward, meaning that sufficient capacity (from both rail and pipelines) is projected to exist to transport oil until at least 2025,” stated the heavily-redacted memo, reported earlier this week by Canadian Press.
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And while new pipeline capacity is widely touted as a solution for tar sands/oil sands producers who have to offer their product at a discount of about $15 per barrel, the Finance Canada analysis said the controversial Energy East pipeline would only add about $1.48 per barrel to the price, “compared to oil shipped by existing pipelines in the U.S.”
The memo explained that “because refineries have to incur additional costs to refine heavier oils like WCS [Western Canadian Select, the designation for Alberta product] compared to lighter oils like WTI or Brent, they generally demand a discount of around $9 a barrel.” Sending WCS to the United States through the pipeline terminal at Cushing, Oklahoma adds another $5.40 in costs that Alberta producers must also hand back to their customers in discounts.
CP cites Alberta Premier Rachel Notley, Energy East spokesperson Tim Duboyce, and the Canadian Association of Petroleum Producers, all predicting strong demand and firm contracts for Alberta crude. And a Reuters report this week warns that the absence of new pipeline capacity will drive heavy crude prices even lower.
But late last week, Bloomberg reported that U.S. refiners had already found alternatives to Canadian supplies cut off by the Fort McMurray wildfires.
“U.S. refiners are doing just fine without as much crude from their northern neighbour,” the news agency noted. U.S. imports from Canada fell to 2.6 million barrels per day, their lowest level since mid-May, and competing imports from Mexico grew to 803,000 barrels, their highest since mid-April, though purchases from Canada will ramp up again now that Alberta production is back online.
