VANCOUVER (miningweekly.com) – Canada can expect to incur up to C$15.8-billion in lost revenues this year because of pipeline capacity bottlenecks in the country, and fervent opposition to building new pipelines that can open new markets for the domestic industry.
A new report by Canadian independent policy think tank, the Fraser Institute, pointed out that as oil production ramped up in Canada in recent years, pipeline construction has not kept pace. And despite approvals from review agencies, the status of several major pipeline projects remains uncertain.
“Without adequate pipelines to tidewater ports, Canadian oil producers are forced to sell their product in the US at dramatically discounted prices, which results in substantial losses for the energy sector and the economy more broadly,” senior director of natural resource studies Kenneth Green said in a news release.
The institute warned that this lack of adequate pipeline capacity has created an overdependence on the US market and an increased reliance on oil-by-rail, a mode of transport that is more costly and less safe.
Even after adjusting for quality differences and transportation costs, Western Canada Select – the heavy oil extracted from Canada’s Alberta-based oil sands – sells for a significant discount to the comparable West Texas Intermediate oil benchmark.
According to the institute, the price difference between Canadian and US oil is $26.30/bl this year, which will lead to a C$15.8-billion loss for Canada’s energy sector. Between 2012 and 2017, the price difference averaged $16.54/bl, costing Canadian producers an estimated C$20.7-billion in foregone revenues.
“More pipeline capacity would not only benefit the energy sector and our economy, it would also benefit the environment because pipelines are safer than rail. For Canadians to continue prospering from our natural resources, the federal and provincial governments must work together to expedite the pipeline process and connect Canada’s oil producers with markets overseas,” Green stated.