CALGARY, ALBERTA--(Marketwired - Sep 23, 2013) - Canada's economy loses tens of millions of dollars daily because pipeline bottlenecks choke access to more lucrative markets for Western Canadian conventional heavy crude oil and oil sands bitumen, concludes a new study published today by the Fraser Institute, an independent, non-partisan Canadian public policy think-tank.
Most Western crude sells at a discount in the United States midcontinent region, where oil pipelines are generally operating at or close to full capacity. Similar heavy oils fetch higher prices at refineries in the U.S. Gulf of Mexico region and in the U.S. northeast according to The Canadian Oil Transport Conundrum.
Even the proposed Keystone XL pipeline won't resolve the problem because Canadian producers would still have to compete for capacity in the line with surging U.S. shale oil production from North Dakota and a number of other states.
"The perception that only Alberta benefits from the oil sands is incorrect. The prosperity of a broad swath of Canadians is dependent on the growth of Canada's oil production," said Kenneth P. Green, Fraser Institute Senior Director of Natural Resource Studies and co-author of the study.
"Capacity must be put in place to allow Western Canadian crude oil to reach tidewater on Canada's western and eastern coasts - if Canada is to get its oil to markets where higher prices can be realized."
From 2011 through May 2013 Western Canadian Select heavy crude oil sold in the mid-continent region at an average $36 US below the price for North Sea sweet light crude, a world benchmark. By contrast Mexican Mayan crude oil which is similar to Western Canadian conventional heavy crude, sold in the U.S. Gulf region at a "modest discount" to the world price.
The discount to North Sea light crude, as captured by the Brent price marker, was only $14 US a barrel during the 2008-2010 period. Since then, Western Canadian Select has not increased in price at the same pace as Brent.
The study describes a "huge ongoing and increasing loss of revenue." For example in the fourth quarter of 2012 Canada exported conventional heavy crude and bitumen blends at a combined production rate of 1.27 million barrels a day. At that rate, with an average $37 (U.S.) per barrel discount to the Brent price, Canada was losing $47 million a day on average, implying $17 billion a year.
"Canada's oil does not command the price that it could on a world market because it's bottled up in the Midwestern United States, where it causes a glut, and can't get out to the refiners on the Gulf Coast and offshore refiners and destinations where it can command a higher price," Green said.