Canada has plenty of oil, and demand is high, but the Canadian oil industry has nevertheless taken a major hit this year thanks to its persisting pipeline bottleneck. The Albertan oil industry has long been plagued by insufficient pipeline volumes but has not been able to fix the issue with any semblance of efficiency thanks to major bureaucratic and litigation-based delays on building new infrastructure like the long-delayed Trans Mountain pipeline expansion project.
With pipeline capacity maxed out, Canadian oil producers have run out of storage space, leading to a major glut in oil reserves with nowhere to go. This has forced Canada to sell their oil at a major discount. In fact, a new study released this week by conservative think tank the Fraser Institute calculates that Canadian oil producers missed out on a whopping $20.62 billion more than they earned this year thanks to their severely depressed prices. Compared to the West Texas Intermediate benchmark, in the last year Canadian heavy crude traded, on average, at a discount of $26.50 U.S. a barrel. This is a huge dive from the five-year preceding, when Canadian heavy crude traded at an average of just $11.90 U.S. a barrel less than West Texas Intermediate.
The pipeline capacity deficit has negatively impacted the Canadian economy in a number of ways. “Canada’s lack of adequate pipeline capacity has imposed a number of costly constraints on the country’s energy sector including overdependence on the US market and reliance on more costly modes of energy transportation,” states the Fraser Research Bulletin. “In 2018, these factors, coupled with the maintenance downtime at refineries in the US Midwest, resulted in significant depressed prices for Canadian heavy crude (Western Canada Select) relative to US crude (West Texas Intermediate) and other international benchmarks.”
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