Impacts of the Keystone XL pipeline

By Carl Evans, Senior Oil Analyst, Genscape

The Keystone XL oil pipeline increases prices realized by Canadian producers, allows more crude to flow by pipeline out of Western Canada, and consequently lowers the amount of crude-by-rail, which is a much less cost effective and more polluting method of transport.

On January 24, 2017, President Donald Trump took steps to move forward with the construction of both the Keystone XL and Dakota Access oil pipelines. According to a Bloomberg News article, Trump "stopped short of green lighting construction... and reiterated an earlier campaign pledge to seek a better deal on TransCanada Corp.'s proposed Keystone XL."

According to Genscape, the Keystone XL pipeline (590 Mb/d) would be a very significant addition to existing major pipeline takeaway capacity out of Alberta, positively impacting both TransCanada and notably many SAGD Bitumen projects that are currently producing or under construction. Even with crude prices below $50/bbl over the last two years, heavy bitumen production has continued to grow, and in late 2017, will begin to run up on existing takeaway capacity. This pipeline, while still at least two years away from completion, would strengthen all regional crude differentials in Alberta, and most importantly Western Canadian Select, which would give heavy producers a higher price for their barrels. At the most basic level, this pipeline increases prices realized by Canadian producers, allows more crude to flow by pipeline out of Western Canada, and consequently lowers the amount of crude-by-rail, which is a much less cost effective and more polluting method of transport.

As seen in the chart below, Canadian production of heavy crude will reach pipeline/WC refinery takeaway capacity limits by the end of 2017. This chart shows that, with a late 2019 start date of KXL and with Enbridge's Line 3 expansion (370 Mb/d), this bottleneck will be greatly alleviated.

The Keystone XL oil pipeline increases prices realized by Canadian producers, allows more crude to flow by pipeline out of Western Canada, and consequently lowers the amount of crude-by-rail, which is a much less cost effective and more polluting method of transport.

Genscape will be hosting a webinar on Tuesday, January 31, 2017 at 2:00 PM ET that will provide an update on the Current State of the Canadian Oil Market. The webinar will provide an update on crude oil production, exports, pipeline movements, and refinery runs, with a specific focus on Western Canada. Click here to learn more about the webinar or to register now.

Genscape's Mid-Continent Pipeline Service provide total visibility into what's driving Canadian and U.S. crude oil markets, with insight into critical pipelines that supply storage hubs and refineries. Genscape's Canadian Pipeline Service provides unprecedented insight into critical crude oil pipeline flows traversing the Canada-U.S. border. Click here to request a free trial of the Mid-Continent Pipeline Service.

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