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Supply outpaces shipping
NEB fingers lack of rail, pipelines as ‘primary factor’ in oil sands price crash
Gary Park for Petroleum News
Pressure on the government of Canadian Prime Minister Justin Trudeau to either help fund expanded rail capacity or clear the way for new pipelines has come from the national energy regulator’s estimate that Western Canada’s oil supply is 365,000 barrels per day above the volume flowing in existing pipelines.
In a new report to the government, the National Energy Board reiterated the industry’s view that the “primary factor” in a recent sharp decline in the value of oil sands crude is that production is outstripping export pipeline capacity.
The NEB compiled the data in response to a request from Natural Resources Minister Amarjeet Sohi who asked the regulator for advice on how to optimize available pipeline and rail transport.
He has come under increasing fire for dithering over an in-service date for expansion of the Trans Mountain pipeline system which is now owned by the Canadian government.
NEB online forum In response, the NEB said it has started an online forum to gather public input and will meet with pipeline companies, producers, shippers, government officials to develop recommendations for Sohi in February.
The report along with the follow-up public consultation is the first sign that the Trudeau government is reacting to a wave of demonstrations in Alberta communities that are reeling from oil price woes and inadequate shipping facilities.
The NEB noted that about 1 million bpd of nameplate Canadian pipeline capacity was added in the 2013-16 period, but there has been no new capacity since then.
The NEB estimates that available pipeline takeaway capacity from Western Canada was 3.95 million bpd in September, while supplies available for export were 4.15 million bpd.
Crude-by-rail exports hit record highs in 2018, reaching 327,000 bpd in October, 2.4 times greater than a year earlier.
Price discounts narrow Price discounts narrowed in early December after the Alberta government announced its plan to curtail production by 325,000 bpd starting Jan. 1, a measure designed to reduce crude in storage and regain normal market prices.
Enbridge, which moves 2.8 million bpd out of Western Canada, said before Christmas that it will boost capacity by 100,000 bpd by mid-2019.
Company Chief Executive Officer Al Monaco said the pipeline system “given its scale and reach, can be a very big part of the solution.”
Enbridge said it hopes to switch its main oil pipeline network that currently operates as the spot market to one that is underpinned by long-term contracts beginning in 2021 in a move that would benefit large and small producers.
Guy Jarvis, president of the company’s liquids pipeline division, said there is broad support for a contracted system from a combination of Canadian producers and U.S. refiners, who dislike the current apportionment of pipeline capacity.
The shipping and price problems have prompted Cenovus Energy to cut capital spending to C$95 million-C$110 million in 2019 from a scheduled C$140 million in 2018, while Canadian Natural Resources slashed C$1 billion from its budget, which was expected to reach C$4.6 billion in 2018, while leaving the door open for an increase if crude prices improve and stabilize.
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