• 3 minutes China has *Already* Lost the Trade War. Meantime, the U.S. Might Sanction China’s Largest Oil Company
  • 7 minutes Saudi and UAE pressure to get US support for Oil quotas is reportedly on..
  • 11 minutes China devalues currency to lower prices to address new tariffs. But doesn't help. Here is why. . . .
  • 15 minutes What is your current outlook as a day trader for WTI
  • 2 hours Maybe 8 to 10 "good" years left in oil industry * UAE model for Economic Deversification * Others spent oil billions on funding terrorism, wars, suppressing dissidents * Too late now
  • 19 hours Long Range Attack On Saudi Oil Field Ends War On Yemen
  • 6 hours In The Bright Of New Administration Rules: Immigrants as Economic Contributors
  • 2 hours Will Uncle Sam Step Up and Cut Production
  • 6 hours 'No - Deal Brexit' vs 'Operation Fear' Globalist Pushback ... Impact to World Economies and Oil
  • 7 hours CLIMATE PANIC! ELEVENTY!!! "250,000 people die a year due to the climate crisis"
  • 8 mins With Global Warming Greenland is Prime Real Estate
  • 20 mins Sad . . . Only thing that moves oil price up is an attack on Tankers or Oil Facilities (Staged or real?)
  • 8 hours Domino Effect: Rashida Tlaib Rejects Israel's Offer For 'Humanitarian' Visit To West Bank
  • 1 day Gretta Thunbergs zero carbon voyage carbon foot print of carbon fibre manufacture
  • 11 hours Trump vs. Xi Trade Battle, Running Commentary from Conservative Tree House
  • 1 day Continental Resource's Hamm wants shale to cut production. . . He can't compete with peers.
  • 2 days NATGAS, LNG, Technology, benefits etc , cleaner global energy fuel
  • 1 day US Petroleum Demand Strongest Since 2007
Alt Text

Oil Prices Crash On Recession Fears

Oil prices fell sharply on…

Alt Text

Shale Bankruptcies Are On The Rise

The number of shale bankruptcies…

Alt Text

A Limited Risk Play In A Shaken Market

Recession fears tanked stock markets…

Nick Cunningham

Nick Cunningham

Nick Cunningham is a freelance writer on oil and gas, renewable energy, climate change, energy policy and geopolitics. He is based in Pittsburgh, PA.

More Info

Premium Content

Why Canadian Oil Giants Won’t Expand Production Capacity

The long-chronicled pipeline woes in Canada continue to bedevil the oil industry. Now, major Canadian companies are holding back on upstream production expansions because of the inability to ship oil out of the country.

The lack of new pipeline capacity led to a crash in Western Canada Select (WCS) late last year, with prices briefly trading as low as $15 per barrel at a time when WTI was trading as much as $40 higher. In response, the government of Alberta did its best impression of the old Texas Railroad Commission, implementing mandatory production cuts, which took effect at the start of this year. The supply curbs have been wildly successful at rescuing WCS prices, although Canadian oil producers have also received a boost from the heavy oil outages in Venezuela. WCS is close to $50 per barrel now.

Yet, the pipeline woes have not been addressed. In fact, the bad news has only continued to pile up. Enbridge recently delayed its Line 3 in-service date until the second half of 2020, after originally expecting the project to come online later this year. The pipeline project could also run into trouble from indigenous communities affected along the route.

The inability to add new pipeline capacity is weighing on oil producers. Even Alberta’s production curbs have added an additional layer of complexity that companies need to account for. On Friday, Imperial Oil announced that it was slowing the pace of development at its Aspen oil sands project due to “market uncertainty stemming from Alberta government intervention and other industry competitiveness challenges.” Imperial said that it “remains concerned about the unintended consequences of the government’s decision to manipulate prices, including the negative impact on rail economics.”

Alberta’s production curbs pushed prices up to such a degree that shipping oil by rail is no longer economical. That may change, but it’s complicated the industry’s efforts at securing contracts to move additional barrels out of the country. Related: Venezuela’s Latest Nightmare: Crude Oil In The Tap Water

“This was a difficult choice in light of our final investment decision on Aspen announced last November,” Rich Kruger, chairman, president and chief executive officer of Imperial, said in a statement. “However, we cannot invest billions of dollars on behalf of our shareholders given the uncertainty in the current business environment.”

Imperial said it will likely delay the C$2.6 billion project by a year. It had only given the greenlight last November. “The decision to return to planned project activity levels will depend on factors such as any subsequent government actions related to curtailment and our confidence in general market conditions,” Kruger added.

Days earlier, MEG Energy Corp. said that the delay of the Line 3 pipeline means that it probably won’t move forward on a $75 million expansion of its Christina Lake oilsands project. Unfortunately for MEG, it had already spent $275 million on the expansion. But the CEO said that there was no use in moving forward without the completion of the Line 3 pipeline replacement. “We don’t want to be building capacity into a system where we don’t have the ability to move it,” MEG’s CEO Derek Evans said in a conference call.

MEG saw its share price fall nearly 10 percent when it reported its fourth quarter figures earlier this month – the company reported a large loss due to heavily discounted WCS prices in the last few months of 2018.

Bloomberg also reports that Canadian Natural Resources Ltd. may delay the startup of the Kirby North project, as well as its Primrose project. “It’s just too early to say whether we’d start those projects up” or delay them, the company’s CEO Tim McKay said on an earnings call.

There is little relief in sight. The Line 3 replacement project was expected to add more than 300,000 bpd of capacity, and it was the only project that had any chance of being completed in the short run. The Trans Mountain Expansion and Keystone XL have repeatedly hit delays, and are much further behind in the process. Canadian oil producers have limited scope to lift production at all given the complete lack of takeaway capacity.

By Nick Cunningham of Oilprice.com

More Top Reads From Oilprice.com:

Download The Free Oilprice App Today

Back to homepage

Leave a comment
  • Brett Blaikie on March 19 2019 said:
    Explain why shipping crude by rail made sense at $15/bbl but does not at $55/bbl how does that work again? There is demand for heavy to replace lost Venezuela oil and so Imperial and Suncor want curtailment lifted - but for how long? And if the Gulf refineries are eager to trade let us discuss aluminum and steel and softwood tariffs shall we?

Leave a comment

Oilprice - The No. 1 Source for Oil & Energy News
Download on the App Store Get it on Google Play