Just how important is market access and lack of pipeline capacity to the Canadian economy?
A report released on Tuesday by the Fraser Institute, a Canadian public policy think-tank, said the issue is driving down the price of Canadian oil, costing the country’s energy sector $20.6 billion in lost revenues last year.
“Without sufficient pipelines to coastal ports, Canadian oil producers must sell their product to the United States at dramatically discounted prices, which leads to large losses for the energy sector and more broadly Canada’s economy,” said Elmira Aliakbari, associate director of natural resource studies at the Fraser Institute and co-author of The Cost of Pipeline Constraints in Canada, 2019.
The study said that Canada’s overdependence on the U.S. market – due to Canada’s lack of pipeline capacity to tidewater – has led to a greater reliance on shipping by rail, a more costly mode of transport. Therefore, Western Canada Select – the heavy oil extracted from Canada’s oil sands – sells for much less than comparable West Texas Intermediate oil.
The Fraser Institute said the price difference last year between Canadian and U.S. oil was US$26.50 per barrel. In November 2018, WCS traded at roughly 30 per cent of WTI, representing a 70 per cent price discount.
The report said last year’s lost revenue nearly eclipsed the revenue loss for the previous five years combined (2013 to 2017), when Canada’s pipeline shortage cost its energy sector $20.7 billion.
“Clearly, the federal and provincial governments must better co-operate to get pipelines built so Canada’s oil producers can connect with markets overseas,” said Ashley Stedman, study co-author and senior policy analyst at the Fraser Institute.
– Mario Toneguzzi