The Premier of Alberta, Rachel Notley, has called on the federal government in Ottawa to supply more rail cars to transport the province's rising crude oil production to refineries as part of efforts to tackle an uncomfortably deep discount between Western Canadian Select and WTI resulting from the lack of pipeline capacity.
CBC quoted Notley, who spoke after a meeting with Albertan energy industry representatives, as saying "The best and only long-term solution to the price gap is building new pipelines. In the meantime, however, we need to take a close look at the tools available to us to close the differential where it's feasible. Like, for example, increasing the efficiency and availability of rail capacity to move our products."
As of this morning, the discount of Western Canadian Select -the benchmark price of oil from Canada's oil sands delivered at Hardisty, Alberta-to West Texas Intermediate had extended to about US$52 a barrel-the latest stage in a development that has hammered Canadian producers' margins thanks to the pipeline capacity shortage combined with higher railway transportation costs.
Meanwhile, Chinese refiners are taking advantage of the low price. They purchased 1.58 million barrels of heavy Canadian crude oil for loading in September, up by nearly 50 percent compared to the 1.05 million barrels they imported from Canada in April, Bloomberg reported earlier this month, and no wonder. In a context of rising prices, a $50-per-barrel discount is more than a good bargain, especially since Chinese refineries need a lot of heavy crude.
For Canadian producers, however, this discount is a form of punishment, Notley said, and it will send ripples that will reach the federal budget, too. "If it continues, it is going to have a significant impact, frankly, on Ottawa's bottom line," the Alberta PM, who has been very active in defending the province's oil industry, also said.
By Irina Slav for Oilprice.com
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Irina is a writer for Oilprice.com with over a decade of experience writing on the oil and gas industry. More
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