Canadian Oil Trapped Without More Pipeline Capacity
Adding insult to injury for Canada’s oil industry, Democratic Presidential candidate Hillary Clinton came out against the Keystone XL Pipeline on September 22, ending several years of silence and waffling on the controversial issue.
That comes as a blow to TransCanada, the project’s backer, who wanted to connect Canada’s oil sands to refineries on the U.S. Gulf Coast. The 1,179-milepipeline would allow 830,000 barrels of oil per day to be exported from Canada. Clinton’s opposition will add some pressure on the U.S. President to reject the pipeline, which looks increasingly likely.
But if the pipeline is rejected, it won’t just be bad news for TransCanada, but also for Canada’s larger oil industry. Canadian crude trades at a discount to WTI, in part because of a lack of pipeline capacity. That discount has fluctuated over the years – ranging from $40 at a high point to around $15 today – but the bigger the discount, the more revenue is lost by Canada’s oil producers.
Related: Peak Oil Has More To Do With Oil Prices Than You May Think
Now with oil prices less than half of what they were from a year ago, the discount that Canada’s oil sector must sell their oil for is even more painful. “At $100 a barrel it was a big concern. At $45 a barrel, that is a far larger percentage (of revenue) and is likely the difference between profitable and unprofitable on many of the assets,” Tim McMillan, president of the Canadian Association of Petroleum Producers (CAPP), told Reuters in an interview in early September.
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