Pipeline Problems Force Canadian Crude To Sell On The Cheap

0
39
views

Canadian oil producers are burning away almost $50 million dollars daily as the industry combats both infrastructure and political problems. 

Alberta’s Oil Sands thrived in 2011 producing  a record setting number of over 3000 barrels of crude oil a day according to the Canadian Energy Research Institute. However despite high production numbers Canadian crude is selling at a $30 a barrel discount to offset the high cost of delivery. The world price of oil now sits around $107 for heavy oil while western-Canada’s product is selling for $75.

“It is a transportation issue,” says author and journalist Steve LeVine. “All the grades starting from Alberta … are selling at an extremely steep discount because of the problem getting it to market. The transportation bottleneck turns the price negotiation leverage steeply to the buyer, thus driving down the price.”  

Producers are forced to rely on the limited capacity available in pipelines owned by Canadian energy distributer, Enbridge. The pipelines are invaluable and the demand for their usage far exceeds the amount they are capable of delivering. The companies are forced to rely on other more costly forms of delivery. 

A large part of the pipeline was recently shut down to a traffic accident. The company was forced to shut down two major lines in Illinois when a  traffic accident resulted in an explosion that killed two people and injured several others. The pipes took almost a week to repair and temporarily reduced the company’s ability to move oil. 

Currently most of Canadian crude oil has to be shipped out in tanker trucks. An expensive and inefficient process wrought with risks and extra costs.   

In the face of a rise in the US’s domestic oil production and order to remain competitive companies, like Husky Energy and Suncor Energy, are compensating American buyers for having to pay high transport fees.  

 TransCanada, another major Canadian energy player, has the solution. By converting some previously existing line, currently used for natural gas, to pump crude, and building a larger dedicated line across the American boarder, Alberta oil could cheaply flow all the way down to refineries in Texas. Known as the Keystone XL pipeline, it would service both Canadian and American economic and energy interests, however the permit required to build across a boarder require presidential approval and undergo evaluation by the US State Department.  

The $13 billion project faces massive outcry against both the potential negative environmental impacts as well as the original proposed path of the pipeline, which crossed through land belonging to Native-American communities. TransCanada is already two years into the process of applying for an American permit and received approval from the Canadian government in 2010, according to its website. Last November however US President Barrack Obama announced that “the decision on the pipeline permit would be delayed until at least 2013, pending further environmental review.” 

 The delays are costly but the project has not been cancelled merely postponed. The reason many believe is political. 

“My sense is that Obama is for the pipeline. He faces a tough election in which he is counting every vote. It did not make political sense to alienate a key constituency — environmentalists and others on the left. So I think that if Obama wins, it will not be long before the State Department completes its evaluation and the pipeline will be approved,” says LeVine. “If Obama loses, and for whatever reasons doesn’t complete the evaluation, it will be approved in January once the Republican president-designate takes office.” 

Despite the delays TranCanada remains hopeful about the process. 

“We will re-file for our Presidential Permit in the coming weeks” says Terry Cunha, leader of TranCanada’s communications and media relations department. “Refineries on the Gulf Coast that can’t access the lower-priced supply because of transportation constraints are forced to pay higher prices for … oil they must import. 

In the meantime Canadian oil companies are forced to sell their oil at a discount just to maintain demand for their product. With the approval process at least another year away and construction estimated to take between two to three years it will be a long time before the Alberta sees an end to the discount.   

“It will probably last until Keystone, or an alternative, is built.

LEAVE A REPLY

Please enter your comment!
Please enter your name here