It’s a good thing for the industry and Canada to have this great asset
said Erik Alson, MEG’s vice president of marketing, during a conference call with analysts to discuss the company’s first-quarter results.
Canadian heavy oil has historically sold at a lower price than lighter U.S. crude, partly due to differences in product quality and transportation costs, but also due to lack of export capacity by pipeline which has limited market access for Canadian oil.
Sometimes this difference has been significant.
Growing oil sands production and limited pipeline space in the fall of 2018 brought the benchmark price of Canadian heavy oil, known as Western Canada Select (WCS), to nearly US$50 per barrel in below the US West Texas Intermediate (WTI) benchmark price.
The Alberta government ended up reducing oil production in the province for a period of time to resolve the situation. A similar problem occurred in 2012-13, prompting Alberta Premier Alison Redford to blame what she called bitumen bubble
causing a massive shortfall in public revenue.
A 2020 study by IHS Markit estimated that insufficient pipeline export capacity resulted in a US$14 billion loss in value for Canada between 2015 and 2019.
But the expansion of the Trans Mountain pipeline should change that.
The expansion, which marked its official opening last week, provides Canadian oil shippers with access to an additional 590,000 barrels per day of pipeline capacity and opens new markets for oil sands products in Asia and along from the Pacific coast of the United States.
MEG is a major beneficiary of the Trans Mountain expansion, with contracted capacity of 20,000 barrels per day on the pipeline.
