PLANT

Pipeline infrastructure bottlenecks costs Canada billions of dollars

Fraser Institute report calls for urgent action, streamlining of infrastructure.


CALGARY — Canada’s economy loses tens of millions of dollars daily because pipeline bottlenecks choke access to more lucrative markets for Western Canadian conventional heavy crude oil and oil sands bitumen, says a study by the Fraser Institute.

The Canadian public policy think-tank with offices across Canada notes in The Canadian Oil Transport Conundrum report that most Western crude sells at a discount in the US midcontinent region, where oil pipelines are generally operating at or close to full capacity.

From 2011 through May 2013 Western Canadian Select heavy crude oil sold in the mid-continent region at an average US$36 below the price for North Sea sweet light crude, a world benchmark.

Mexican Mayan crude oil, similar to Western Canadian conventional heavy crude, sold in the US Gulf region at a “modest discount” to the world price.

The Brent price marker discount to North Sea light crude was only $14 US a barrel during the 2008-2010 period. Since then, Western Canadian Select has not increased in price at the same pace as Brent.

The study describes as an example in the fourth quarter of 2012, Canada exported conventional heavy crude and bitumen blends at a combined production rate of 1.27 million barrels a day. At an average US$37 per barrel discount to the Brent price, Canada was losing $47 million a day, implying $17 billion a year.

The Fraser Institute says Even the proposed Keystone XL pipeline won’t resolve the problem because Canadian producers would still have to compete for capacity in the line with surging US shale oil production from North Dakota and a number of other states.

Study author Gerry Angevine, senior fellow in the Fraser Institute’s Centre for Natural Resource Studies, warned the situation will become more acute as investment in the oil sands continues.

The National Energy Board projects Canadian oil production will nearly double by 2030 with most of the increase coming from Alberta.

The study, calling for urgent action, recommends a “proactive policy approach” including streamlined pipeline construction regulations and federal efforts to achieve Aboriginal acceptance of increased pipeline capacity.

Click here for a copy of the report.