With Canadian heavy oil companies continually complaining about a lack of pipeline volume to export their product, a new research note by industry analysts GMP FirstEnergy is acknowledging that the biggest problem isn’t a lack of new capacity—but rather a pipeliner’s outright failure to keep its existing infrastructure in operation.
“The most immediate, pressing issue continues to be underperformance on the Keystone pipeline in terms of volumes shipped,” the company writes. “Industry reports continue to point to throughput volumes running anywhere from 70,000 to 100,000 bbls/d [barrels per day] under the pipeline’s design capacity of 590,000 bbls/d.”
That problem traces back to November 2017, when TransCanada Corporation reported a 210,000-gallon oil spill in a stretch of its existing Keystone pipeline in North Dakota. “The spill in Marshall County was the third along the Keystone route in under 10 years, a concern to state regulators since the pipeline’s lifespan is up to 100 years,” Reuters reported at the time. State regulators were concerned enough that there was some speculation TransCanada’s operating permit for the entire line might be suspended or revoked. GMP FirstEnergy says Keystone is still running at reduced pressure as a result.
“Hard information has been difficult to come by from either the pipeline’s operator, TransCanada, or U.S. regulatory agencies, as to when the pipeline might return to full pressure and help to alleviate a backlog of heavy oil barrels that has been accumulating in Alberta against a rising tide of production,” the analysts note. “At this stage, we are of the view that the pipeline will be allowed to return to full operating pressure by the end of the second quarter of 2018, allowing additional heavy oil flows of up to 100,000 bbls/d to reach the U.S. Midwest market and the U.S. Gulf Coast market.”
With new pipeline capacity that is already planned, GMP FirstEnergy expects the price difference between benchmark West Texas Intermediate crude and Alberta heavy oil will narrow to US$16 or $17 per barrel by 2023. (And no amount of new pipeline capacity will offset the reality that Alberta exports a lower-quality product that is more expensive for refiners to process.)