That Glimpse of Daylight is Almost Over for Tar Sands/Oil Sands Producers

Canadian tar sands/oil sands producers’ brief glimpse of black ink in their balance sheets may be coming to an end, a Reuters analysis suggests.

“Most companies are expected to book losses or post sharp drops in profit in the coming quarters, as prices take a hit from a spike in oil sands production and costs rise due to a lack of pipeline capacity,” the news agency predicts.

The sector has recently had its best quarters in several years, based on brutal cost-cutting and an uptick in prices for diluted bitumen. “Demand for heavy crude extracted from Canadian oil sands surged in the past few months,” Reuters reports, “as U.S. refiners sought alternatives amid supply disruptions in key exporter Venezuela and restricted exports by OPEC. As a result, prices of Canadian heavy crude have shot up.”

In response, however, several producers are upping their output, while several projects now in development are expected to add more than 200,000 barrels per day to Alberta’s crude oil flow. That, the analysis warns, “could lead to a glut and put pressure on prices.” That will be doubly so if OPEC abandons its efforts to rein in its members’ production to tighten global supplies and boost prices, efforts that so far have been only dubiously effective.

The longer term holds further challenges for the industry, Reuters writes. Pipelines that now carry Alberta product to U.S. markets and beyond “are expected to hit full capacity in the next couple of years,” it predicts, echoing a common industry complaint, “meaning companies will have to resort to more expensive options such as rail to move oil.”

While new pipeline capacity may come online in Kinder Morgan’s Trans Mountain expansion and TransCanada’s revived Keystone XL line, Reuters observes, “those projects have run into multiple hurdles with environmental groups and local communities, making it difficult to predict when they will come into effect.” Other recent analyses have maintained that additional pipeline capacity will never be needed.