Alberta producers caught in crude-on-crude ‘war’
Why Canadian crude discounts aren’t going away
Alberta producers hoping for a quick rebound in heavy and synthetic crude oil prices in the American Midwest could be in for a longer-than-expected wait.
The late-winter blowout in Canadian differentials is liable to be the first of many such broadsides in an ongoing crude-on-crude showdown, suggests Harold York. “What we’re seeing is the beginning of a war,” he told a Calgary breakfast crowd this spring.
York, vice-president of downstream, Americas, with Houston-based consultancy Wood Mackenzie, was retained by Alberta’s Department of Energy to examine the impact of West Coast export capacity on producer netbacks.
He calculates that, between 2017 and 2025, Alberta heavy oil producers could leave as much as $8 billion per year on the table without access to Pacific tidewater.
The total provides a powerful incentive to deliver Canadian oil to new markets. So, too, does a March analysis of Canadian crude oil discounts conducted by researchers at CIBC World Markets Inc. Here are five factors that could pinch Alberta producers.
Back and Forth
Coking additions in the U.S. Midwest give refineries added flexibility to choose between crude oil slates, CIBC says. Displaced demand for light oil will drive down prices for synthetic crude oil and Bakken streams, as well as Western Canada Select.
Production in the North Dakota play has increased at a rate of roughly 16,500 barrels per day (b/d) per month, CIBC notes. Rig counts hit record levels by the end of spring, leading forecasters to believe a slowdown is nowhere in sight.
An “abundance of growth” in the oil sands will hit markets this year. Researchers at the Toronto-based bank expect production from in situ bitumen projects alone will increase by roughly 85,000 b/d this year and 109,000 b/d in 2013.
To the Sea
A June startup of the Seaway pipeline reversal will only partly relieve congestion in the U.S. Midwest, analysts at CIBC note. Its 150,000 b/d of capacity will be more than offset by roughly 400,000 b/d of light crude oil capacity “backed out” by coking additions.
Planned refinery maintenance in the U.S. Midwest will take an estimated 186,000 b/d of capacity offline through 2012. The outages include a planned October turnaround at BP’s Whiting facility, the largest consumer of Canadian synthetic barrels in the U.S.