Canada paying the price for pipeline intransigence
As we have documented over several years, Canada’s overwhelming dependence on only one market for its oil and gas exports comes with a serious price tag. Canadian Western Select crude oil sells at a substantially lower price than oil from other jurisdictions, such as West Texas Intermediary, Brent crude or Mexican Maya crude.
In 2016, we showed that Canadians were getting 25-30 per cent less per barrel of oil sold into the United States than the price we would command if our oil could get to more lucrative world markets in Asia or Europe. The end of 2017 delivered the bad news that the situation has only deteriorated and Canada’s “price discount” now approaches 50 per cent.
Despite the approval of Keystone XL pipeline and the Kinder Morgan Trans Mountain expansion, oil transport in Canada still faces significant congestion, and slow response by rail companies is not alleviating that bottleneck. As Reuters reports, export pipelines are near (or beyond) capacity, and stockpiles of oil are growing. No additional pipeline capacity is expected until at least 2019. Rail is slow to deploy because it’s both a more costly way to ship oil, and Canadian shippers face a backlog of grainthey also have to move.
The costs to Canadians, both private citizens and governments, are considerable. As we calculated in 2016, if Canada could export an additional million barrels of oil to world markets, and get $60/barrel for its oil (world price as of this writing was US$63.35), Canada would have netted an additional $4.2 billion in export revenues. With a 50 per cent price discount, the situation is even worse today.