Canadian producers concerned about moving product

Canadian producers concerned about moving product

Canadian oil sector concerns are now centered on whether production can access global markets, given a continuing lack of clarity on new pipeline routes from its landlocked Alberta production base, ATB Financial senior economist Todd Hirsh told attendees at the Energy Finance Discussion Group in Denver.

A far cry from earlier wondering as to whether Canada had enough oil—now viewed as “an irrelevant question”— concerns subsequently transitioned to whether enough demand would exist for Canadian oil production given recent forecasts that the U.S., the foremost importer of Canadian crudes, could become self-sufficient in oil by 2020.

Hirsch said such forecasts more precisely call for self-sufficiency for North America, rather than the U.S. alone, by 2020. Even so, “We really need the U.S. to remain an export market,” he emphasized.

And most recently, “The bigger question is, ‘can we even move our oil to global markets?’ ” This would be the “defining question facing the Canadian industry,” pending greater clarity on pipeline export options.

Hirsch noted that the Keystone XL Pipeline still lacked U.S. State Department approval, an issue that “dominated news headlines” in Canada in 2012. The Canadian industry is still hoping to see a favorable ruling on the TransCanada project in 2013.

Plan B is Enbridge’s Northern Gateway Pipeline, which “would have been a snap 20 to 30 years ago,” Hirsch said, but now faces “enormous opposition” in British Columbia.

“We’re not sure we’ll see that pipeline go ahead,” even though it would help diversify Canadian exports to new Asian markets, he said.

Plan C involves reversing Enbridge’s Sarnia- Montreal pipeline system, such that western Canadian oil would be able to reach refineries east of the Ottawa River and potentially access international markets via tankers on the East Coast.

A fourth option also exists in Kinder Morgan’s proposed Trans Mountain Pipeline expansion, involving the twinning of an existing pipeline running from Edmonton to the Pacific Ocean at the Washington state-British Columbia border.

In the meantime, Western Canadian Select crude continues to trade at a substantial discount to West Texas Intermediate— much steeper than the $20 per bbl. or less historical discount, Hirsch noted.

With Canada facing its own “special challenges,” and the worldwide recovery seen as being “hesitant and uncertain” during the next two years, the interaction of supply and demand is expected to make for soft North American oil prices, Hirsch concluded.