$20 a barrel crude in Canada! It is the season for refinery maintenance in the USA, this combined with suffocating regulations and loads and loads of pipeline constraints, has proved to be a disaster for the Canadian oil industry.
Oil Prices Plunge In Canada
Late last month, the prices of oil in Canada took a deep dive and these losses continued all thorough October. Oil producers in Canada, are now earning $40 to $50 less per barrel, as compared to their US counterparts. This low oil price is reflective of not only quality issues, but also the cost of transporting the oil from Alberta, to refineries in the United States of America.
The big problem here is that the oil industry of Canada, is still not able to build a major pipeline from Alberta, to the Pacific Ocean or to the United States of America. There are so many pipeline projects like Trans Mountain Expansion, Northern Gateway, Keystone XL and Energy East, all of which have run into years and years of delay. And then there are those projects like Energy East and Northern Gateway, which have been altogether scrapped.
The Outcome?
WCS (Western Canadian Select) prices were seen available at discounts of $30 per barrel and even more, during the year. But this problem got bigger in late September. Though maxed out pipelines are a big problem, it is now maintenance season for refineries in the U.S. Midwest. Thus, there is now no longer a need for oil from Canada over here.
Marathon’s Detroit refinery, Phillips’ Wood River refinery and the Indiana Whiting refinery of BP, all undertook maintenance. The result was that WCS hit an all time low of $20 per barrel. This meant a shocking $50 discount per barrel. What this actually means is that the Alberta oil industry, is losing about $100 million per day.
Boom Time For Railroad Industry?
Oil producers in Canada are now turning to the railroad industry, to ship their oil to the USA. This of course, is a much more expensive route. According to Scotiabank’s Rory Johnston, shipments of oil from Canada to the USA, by rail, reached an oil time high in June this year, of 204,000 bpd. By the end of 2018, this figure could hit an all time high of 300,000 bpd.
Scotiabank’s Rory Johnston adds, “Given the multitude of challenges currently faced by Canadian energy infrastructure projects, many in the industry increasingly see oil-by-rail less as a temporary Band-Aid and more as a permanent, flexible component of the supply chain to a Canadian energy sector seemingly unable to push a major pipeline project to the finish line.”
But Is Rail The Right Solution?
In its October Oil Market Report, the IEA said, “Rail companies are locking in customers with multiyear contracts, as the decision by a Canadian court to overturn the approval of the Trans Mountain pipeline project is firming up demand. Cenovus Energy, for instance, announced a three-year deal with Canada’s CP Rail and CN Rail to transport 100 kb/d of crude from its oil sands facilities in Northern Alberta to the US Gulf Coast.”
Mount Auburn Capital Corp., managing director, Conor Bill, said, “We have a lot of oil in the oilsands and the problem is there aren’t a lot of ways to get that crude out of the area where it’s produced.” Rail seems to be the only solution right now – and for a long long time coming!
The Real Solution? And The Real BIG Problem!
Canada has a handful of oil pipeline projects lined up. But all of these seem to be faced with major obstacles. Enbridge’s Line 3 expansion, Trans Mountain Expansion and Keystone XL, all show big promises of carrying oil from Alberta, to the markets. But it is very unlikely that any of these will materialize anytime soon. Currently, Canada is selling oil at a massive discount of $27-per-barrel. For oil producers of Canada, this means a loss of $20 million per day.
Laura Caplin was born and raised in the busy city of Oakville. As a journalist, Laura has contributed to many online publications including the Financial Post and Huff Post Canada. In regards to academics, Laura earned a degree in business from Lakehead University in Thunder Bay and an master’s degree from Brook. Laura follows the money and covers all aspects of state and federal economy.here at White Pine Tribune.
