Trade link seen lifting Canadian oil revenue

Access to waterborne trade would increase revenue to oil and gas producers of western Canada by billions of dollars per year, according to the Fraser Institute.

Analysts at the Canadian think tank, which uses measurement to assess government policies, said delays in the essential pipeline connections put conventional and unconventional production in western Canada “at risk of being displaced by increasing US oil production.”

With access to global markets limited, crude and bitumen produced in western Canada sell at a discount against widely traded crudes such as North Sea Brent, even after adjustments for quality differences and transportation costs.

Proposals for pipeline projects targeting the Atlantic and Pacific coasts face opposition from environmental and some First Nations and local groups. The US has rejected the border crossing of the Keystone XL system expansion, which would increase transport capacity to the Gulf of Mexico.

The Fraser Institute analysts, Gerry Angevine and Kenneth P. Green, estimated the revenue effects, in Canadian dollars, of the ability to export 1 million b/d through ocean ports at varying crude prices, in US dollars.

Assuming that 1 million b/d of waterborne export capacity were available and that most exported heavy oil and bitumen continued to flow to the US, they found producer revenue would be as much as $2 billion/year higher at a crude price of $40/bbl.

At $60/bbl, the incremental revenue would be $4.2 billion/year. At $80/bbl, it would be $6.4 billion/year.

If higher netbacks from markets accessed via tidewater connections were realized by all western Canada heavy oil production, annual benefits at the asserted crude prices could reach $8.9 billion, $18.5 billion, and $28.2 billion, the analysts said.

“Every effort should be made to expedite pipeline project review and assessment processes before windows of opportunity for access to new markets are largely preempted by competitors,” the analysts said, suggesting federal intervention might be needed “if the legislated regulatory review process with regard to a particular project is unduly delayed.”

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