recently completed Trans Mountain Pipeline An executive at an oilsands producer said the expansion would raise Canadian oil prices for “years” to come. MEG Energy The corporation said on Tuesday.
“It’s great to have this tremendous asset available to the industry and to Canada,” said Eric Alson, MEG’s vice-president of marketing, during a conference call with analysts to discuss the company’s first-quarter earnings.
Canadian heavy oil has historically sold at a discount to lighter U.S. crude, partly due to differences in product quality and transportation costs, but also due to a lack of pipeline export capacity that has limited market access for Canadian oil. .
At times, that discount has been severe.
In the fall of 2018, the price of Canada’s heavy oil benchmark, known as Western Canada Select, sold for about US$50 a barrel below the U.S. benchmark West Texas Intermediate due to surging oil sands production and limited pipeline space. The government of Alberta temporarily cut oil production in the province to address the problem.
A similar problem occurred in 2012–2013, leading Alison Redford, then-premier of Alberta, to blame the “bitumen bubble” for a sharp decline in government revenues.
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A 2020 study by IHS Markit estimated that Canada lost US$14 billion between 2015 and 2019 as a result of inadequate pipeline export capacity.
But the Trans Mountain Pipeline expansion is expected to change things.
The expansion, which made its official debut last week, gives Canadian oil shippers access to an additional 590,000 barrels per day of pipeline capacity and opens new markets for oil sands product in Asia and along the U.S. Pacific coast.
MEG is one of the main beneficiaries of the Trans Mountain expansion, with contracted capacity of 20,000 barrels per day on the pipeline.
Canadian heavy oil prices rose in April in anticipation of the start of the pipeline expansion and the WCS-WTI gap narrowed, and Alson said Tuesday he expects this to be a long-term trend.
“With this critical infrastructure now complete, we expect the light-weight gap to remain low for years,” he said.
It took years for oilsands companies to increase their production before Trans Mountain came online, as the pipeline expansion was first proposed a dozen years ago and took more than four years to build. Many analysts have suggested the pipeline will fill quickly, as Alson acknowledged.
“As an industry, we have a history of filling available voids, and I think that will happen again over time,” he said.
“There are various estimates about when this might happen. We (estimate) have looked at as recently as two years, others have looked at within five or six years. Our thinking is closer to the outer edge of that time frame.
Alson said he does not expect another oil pipeline to be built in Canada. But he said a possible future expansion of Enbridge Inc.’s mainline pipeline network, which has been expanded several times in its 75-year history, could provide some relief to oil shippers once Trans Mountain fills up.
He said there may also be ways to increase efficiency or “de-bottleneck” other existing pipelines without starting new construction.
MEG Energy Corporation said it earned $98 million in its first quarter, up from $81 million during the same quarter last year.
The Calgary-based company’s revenue totaled $1.4 billion, down from $1.5 billion a year earlier.
Diluted earnings per share rose to 36 cents from 28 cents.
Bitumen production during the period ending March 31 averaged about 104,000 barrels per day.
Former chief operating officer Darlene Gates stepped into the role of chief executive at MEG on May 1, replacing outgoing CEO Derek Evans.
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