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Report: High Output, Not Pipeline Constraints Hurt Canadian Oil Industry

Montney shale

Canada’s oil industry, most of which is housed in Alberta, has had a tough year, with the discount to WTI falling to record highs before Premier Alberta Notley mandated a production cut of over 300,000 barrels daily that went into effect this month. A new NEB report says the pipeline constraints are not the problem, contrary to popular belief.

Calgary, Alberta, yesterday reported a $5 billion loss in commercial property in its downtown area, thanks to the province’s floundering oil industry that is drowning in the steep discount to WTI and insufficient pipeline capacity to take its oil across its borders.

Pipeline constraints in Canada, which has caused a backup of oil inventories in the country, is the main reason cited for the dramatic fall in Canadian oil prices. And now those low prices are snowballing into the commercial property sector. Cenovus Energy Inc. and Encana Corp, for one, saw their Calgary-based headquarters property lose almost 19% of its value in 2018.

The National Energy Board (NEB) said on Friday, however, that pipeline capacity constraints were not the only thing plaguing Canada’s oil industry. It instead shifted the blame onto increased oil production in the last couple of years, saying that if its oil producers weren’t producing so much oil—which came in at 4.3 million barrels per day in September—pipeline capacity at 3.95 million barrels per day would not have been an issue. The NEB also cited lower demand from US refineries—a significant market for Canadian oil producers—due to maintenance season. Western Canada’s largest customer in the US, BP’s Whiting Refinery in Chicago, went offline in September, exacerbating the discount of WCS to WTI, the NEB said.

Refinery maintenance season, however, is a routine occurrence experienced annually that was unlikely to come as a surprise.

Canada is the world’s fourth largest crude oil exporter, the NEB report said, exporting 3.3 million barrels per day.

WCS was trading at $31.24 on Friday, while its WTI counterpart traded at $48.09 per barrel.

By Julianne Geiger for Oilprice.com

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  • Chuck Hughes on January 06 2019 said:
    What a brilliant and insightful observation. Lol was it done by a 5 year old? So your saying if there was less oil no pipeline problem. So if there was less people there would be less unemployment as well. Or if there was less veterans there would be less vetrans needing support.
    Sounds like something the sub drama teacher in charge would say. Like the budget they will work themselves out!
  • David Kosinski on January 04 2019 said:
    Thanks for the tip NEB. This is ridiculous. If we just shut down all the oil plants then we'd have an excess of pipeline capacity! Then we could use that excess capacity for importing our energy needs from markets that aren't subject to a crippling carbon tax. So disappointed that the federal board in charge of managing Canada's energy affairs would put out something so asinine. Just admit already that it is the federal liberal's goal to phase out Canada's energy sector. This will speed up the process of Alberta separating from Canada, and therefore also speed up the liberal's goals of phasing out "Canada's" energy sector. Win win.

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