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GlobalData: Canada’s large price discounts on oilsands barrels to persist until new pipeline capacity is added

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Oilfield Technology,

Canada’s existing oil pipeline and railway capacity is enough to support oil sands current exports but with little extra room for logistic constraints. Presently, there are at least three announced pipeline projects that will serve different markets and hence can support the diversification of exports and better pricing of oil sands production, says GlobalData.

The three announced pipeline projects are the Trans Mountain expansion project adding 590 000 bpd of capacity, the Enbridge Line 3 replacement adding 370 000 bpd of capacity and the Keystone XL project adding 830 000 bpd of capacity.

Adrian Lara, Oil & Gas Analyst at GlobalData, comments: “Once in operation the total pipeline capacity will be at a surplus even in a high case scenario for oil sands in which production surpasses 4 million bpd by 2025. This additional takeaway capacity will certainly provide the flexibility to minimise the pricing impact of any transportation bottlenecks.”

Since 2015 the volume of oil sands exports to the US Gulf Coast has been growing in average at approximately 100 000 bpd every year replacing Latin American exports of heavy crude grades. However the Canadian quality benchmark price for oil sands production, the West Canadian Select, still carries a larger discount when compared to the Maya crude grade that is also exported to the US Gulf Coast. Moving ahead with the 830 000 bpd Keystone XL pipeline will certainly establish a better price formation for the increasing oil sands demand in the gulf coast.

Lara adds: “Securing access to US refining markets is just the easiest plan in the shorter term and diversifying to Asian markets seems a reasonable longer term strategy. In spite of this strategic anticipation from both Canada’s government and oil sand operators, until the new pipeline capacity is built Alberta’s heavy crude oil production will remain subject to logistic constraints and relatively large price discounts.”

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