Although price differentials between Canadian crude and that of other markets hasn’t curtailed investment, it may be moving midstream companies toward pipelines that head out to tidewater locations instead of inland, experts say.

Steve Wuori, strategic advisor in the chief executive office at Canada’s Enbridge Inc., highlighted the impact of lacking infrastructure on pricing during the panel, “Pipes, Trains and Barges: The Transformation of North American Oil Logistics,” featured during IHS CERAWeek 2014 in Houston.

“Canada is a country that consumes a million and a half barrels (bbl.) of oil a day. It produces twice that. And then it
imports another 700,000 bbl. of oil a day, so if you do the math, that means 2.2 million bbl. a day must be exported from Canada every day,” he explained. “And that puts a real challenge on pricing for Canadian production.”

Pipelines used to flow from tidewater into inland destinations, and that has changed as companies look for ways to tighten pricing differentials. Wuori said that last year, Canadian crude traded at various times from $8 to $40 bbl. less than West Texas Intermediate (WTI) crude.

“That’s a huge variation,” he said. “The whole goal is to get to tidewater, somewhere where you can get a better price
than the landlocked price inland.”

While the differentials create winners and losers, he said, it hasn’t disheartened investors. “There is a confidence those differentials will become manageable or predictable,” he said, noting that several major pipeline projects to move crude to east and west coasts are under construction or in the permitting process.

“Part of what pipeline projects are designed to do is to help stabilize, not eliminate, that differential,” he explained.

Wuori said there is a lot of enthusiasm for getting crude to ports on the East and West Coasts, based in part on the “frustration over what it takes to go north and south, highlighted by Keystone XL and the many years it’s taken to resolve.”

He added that when one considers the chronic discount to Canadian crude, “there absolutely is a will to get to the coast, in particular, the West Coast. The Asian market is one that we think should be targeted, especially for heavy oil.”

The notion that heavy Canadian crude from Alberta would go to Asian markets where emissions restrictions are less than those in the U.S. is one point supporters of the Keystone XL pipeline have often mentioned.

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