No pipelines? No problem - at least not in the short term

No pipelines? No problem - at least not in the short term

Alberta's oil executives gathered at the TD Securities Energy Conference in Calgary this week, to discuss pipelines, politics and how they plan to avoid exposure to the Canadian heavy oil discount.

BITUMEN PRODUCTION PROFILE (COURTESY HUSKY ENERGY)

Husky Energy CEO Rob Peabody says his company has plenty of pipeline export capacity to cover output, at least until 2021. The company already has about 75,000 bbl/day of volumes committed on the existing Keystone pipeline to the Gulf Coast and Enbridge's Mainline to the Midwest. Peabody remains confident that Keystone XL, the Trans Mountain Expansion and Enbridge's planned replacement of Line 3 will eventually get built. Husky has been working to increase its heavy oil processing capacity at its refineries in Ohio and Wisconsin, as it plans to boost bitumen production out of Alberta and Saskatchewan by 50% over the next 5 years.

Suncor Energy COO Mark Little echoed a similar sentiment, noting that 100% of production from the new Fort Hills mine already has space booked on existing pipelines. Suncor's portion of Fort Hills should increase to about 100,000 bbl/day by the end of this year. Aside from Fort Hills, Suncor produces about 350,000 bbl/day of light upgraded crude oil, which is mostly processed into its Canadian and US refineries.

Imperial Oil CEO Rich Kruger says his company is also looking at boosting heavy oil processing capacity at its refineries, in order to reduce the company's exposure to Western Canadian Select (WCS) prices. Imperial produces a significant volume of heavy oil, including over 200,000 bbl/day from its Kearl Mine and 180,000 bbl/day out of Cold Lake.

Cenovus Energy Executive VP Al Reid confirmed the company is still awaiting more clarity with respect to new pipeline construction before it revives two deferred in-situ projects at Christina Lake and Foster Creek. If completed, the expansions will add another 75,000 bbl/day of bitumen to the company's current heavy oil output of almost 375,000 bbl/day. To get around pipeline bottlenecks, the company has invested heavily in crude-by-rail loading capacity at Bruderheim, Alberta. Pipeline constraints forced Cenovus to truck production from Christina Lake to a refinery in Colorado last spring, resulting in higher operating costs for its oil sands operations. 

The WCS discount to West Texas Intermediate (WTI) has been as high of US$30 a barrel this year due to constraints on export pipelines to the US and rising production out of the oil sands, which peaked over 3 million bbl/day late last year. The discount has since narrowed to US$20 as crude-by-rail export capacity continues to rise and recent outages in the oil sands has taken some production offline.

 

CDN HEAVY AND LIGHT OIL DISCOUNT TO WTI (USD/BBL)
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