Western Canadian oil producers are at risk of losing CAN$100 billion in the next 15 years if no new pipelines are constructed in North America, according to energy research firm Wood Mackenzie.
Canadian oil production continues to rise and pipeline capacity remains constricted, pushing 200 000 bpd of oil onto the railways.
"In the past several years, we have seen big increases in supplies of oil from the United States and Canada," said Afolabi Ogunnaike, a Senior Research Analyst in refining and oil product markets for Wood Mackenzie. "Most of the supply is from parts of the country far removed from refining demand centres. That has led to price discounts."
The discounts are the lower prices Canadian producers receive for oil purchased by refineries in the southern US. The differential is between the price of Western Canada Select (WCS) and West Texas Intermediate (WTI), the North American benchmark.
Oil transportation bottlenecks can cause oil differentials to rise. The differential, dubbed the ‘bitumen bubble’ by former Alberta Premier Alison Redford a few years ago, can potentially reduce the earnings of energy companies and the royalties collected by provincial governments.
More than US$40 billion worth of pipeline projects are proposed in North America, although many are stalled, including TransCanada's Keystone XL and Enbridge's Northern Gateway. While a few projects such as Northern Gateway try to export Alberta oil through the West Coast, most pipelines aim to move crude south to refineries on the Gulf Coast.
Refineries in the southern US are currently buying Western Canada Select for about seven dollars per barrel cheaper than the market standard West Teas Intermediate.
Edited from various sources by Elizabeth Corner
Sources: CBC, My McMurray