PORT TOWNSEND, Wash. (MarketWatch) — Alberta oil producers are making a lot of crude gestures — many of them pipeline proposals — these days, and for good reason. They’re losing billions of dollars because of depressed prices from a glut of Alberta crude at U.S. refineries.
The latest monthly report from respected Scotiabank commodities analyst Patricia Mohr says the Canadian crude-oil “discount†has now reached above $30 CDN a barrel. That’s largely because of regulatory and political bottlenecks. Almost all that Alberta crude is headed to the U.S. Midwest, where the refineries are flush, instead of to the West Coast, where it could be shipped to China and fetch considerably higher prices on the world market.
That’s why there’s such a rush these days by Canadian companies to build more pipeline capacity. Not all these proposals are (pardon the expression) pipe dreams. Alberta producers don’t want to keep accepting these reduced prices, and it’s time for action.
A barrel of Alberta heavy oil is selling this month, the Scotiabank analyst says, for about $75 US, compared with a world price of about $107. That’s quite a spread you have there, as a cowboy might put it in Alberta.
“There is an urgent need to tap faster growing Asian markets, where world prices prevail, and to diversify away from oversupplied U.S. Midwest refining centres,†Mohr wrote in her Scotiabank report, adding, “While heavy oil development has been growing with the development of the Alberta oil sands as well as conventional fields, the expansion of export pipeline capacity has not kept pace.â€
Mohr’s right, but it isn’t for lack of trying.
Even though pipelines are exorbitantly expensive to build — billions of dollars, typically — there’s even more money being lost by not being able to move product. Canadian oil companies are unanimous these days — better too much pipeline capacity than too little.
You almost need a scorecard to keep track of all the new and pending pipeline proposals that have proliferated recently. Here are a few of the major ones: The big two, well-known proposed pipeline projectshese would, of course, be 1) Trans-Canada’s Keystone-XL project to bring Alberta crude directly to oil hub Cushing, Okla., a high-profile project resisted by environmentalists and probably further delayed by congressional game-playing. President Obama even visited Cushing the other day, giving a thumbs-up to fast-tracking the southern Keystone section, headed to large-capacity Gulf Coast refineries. The other big project is 2) Enbridge’s proposed $5.5 billion CDN Northern Gateway pipeline to a marine terminal to be built at remote Kitimat, B.C. This one’s tied up in public hearings that could go on for months, maybe years. But Enbridge is also busy elsewhere (see below).
