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Canada’s Oil Producers Optimistic On Overcoming Takeaway Constraints

Despite the severe discount of Canadian oil to U.S. oil due to transportation bottlenecks, some of the largest Canadian oil producers are optimistic that they will be able to overcome takeaway capacity constraints as they have enough commitments on existing pipelines and refining capacity.

Due to congested takeaway capacity and an in sufficient number of pipelines to either the Pacific or the Atlantic Coasts, Canada’s oil is currently priced at a huge discount to the U.S. benchmark. The discount at which Western Canadian Select (WCS)—the benchmark price of oil from Canada’s oil sands delivered at Hardisty, Alberta—trades relative to WTI has been US$20, and at times US$30 a barrel this year.

But Husky Energy and Suncor Energy, for example, believe that their existing commitments for transportation will help them overcome the short-term constraints. Many Canadian oil executives also voiced optimism that the three key Canadian pipeline projects would go ahead, senior managers at several companies told Reuters on the sidelines of a conference in Calgary this week.

Suncor has pipeline access to get 100 percent of its production to the market, chief operating officer Mark Little told Reuters. Husky Energy has excess oil pipeline capacity to the United States, CEO Rob Peabody said, adding that the company had enough capacity locked in to around 2021.

Peabody also expressed optimism that Enbridge’s Line 3 replacement would go ahead. The line, together with the Trans Mountain Expansion Project and Keystone XL, is seen as an important project for Canada to get more oil out of Alberta to the markets.

“We’re definitely seeing progress. The innate logic of replacing a pipeline that needs to be replaced is finally being seen by courts,” Peabody told Reuters.

At the end of last month, the Minnesota Public Utilities Commission (PUC) granted Enbridge a Certificate of Need for the project and approved Enbridge’s preferred route with minor modifications and certain conditions.

At the end of May, the Government of Canada reached an agreement with Kinder Morgan to buy the Trans Mountain Expansion Project, after fierce opposition in British Columbia had forced Kinder Morgan to reconsider its commitment to expand the Trans Mountain pipeline that would increase the daily capacity of the pipeline to 890,000 bpd from 300,000 bpd.

Related: OPEC Won’t Take Additional Action As Oil Prices Rise

Analysts believe that the federal government stepping in to save the Trans Mountain project has boosted the chances that the pipeline will be built and give Canada an export outlet from the Pacific Coast to the Asian markets. The industry is cautiously optimistic, but some companies say that Canada must do more to level the playing field for its oil.


Cenovus Energy, which temporarily slowed oil sands production in February and March due to the wider Canadian oil price differential, is waiting to see more clarity on market access before it resumes two deferred projects with a total initial capacity of 75,000 bpd, Executive Vice-President Al Reid said this week.

By Tsvetana Paraskova for Oilprice.com

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