Summary

• Despite the steady growth in crude oil production (and exports), new pipeline projects in Canada continue to face delays related to environmental and regulatory impediments as well as political opposition. In September 2018, western Canadian oil production reached 4.3 million barrels per day but the takeaway capacity on existing pipelines remained constant at around 3.9 million barrels per day.
• Canada’s lack of adequate pipeline capacity has imposed a number of costly constraints on the country’s energy sector including an overdependence on the US market and reliance on costlier modes of energy transportation. In 2018, these factors, coupled with the maintenance downtime at refineries in the US Midwest, resulted in significant depressed prices for Canadian heavy crude (Western Canadian Select) relative to US crude (West Texas Intermediate) and other international benchmarks.
• In October 2018, Canadian heavy crude (WCS) traded at only about 40 percent of the US crude (WTI) price, which represented a discount of 60 percent. In November, the price differential widened even further and reached almost 70 percent, meaning that WCS was sold at only 30 percent of WTI.
• In 2018, after accounting for quality differences and transportation costs, the depressed prices for Canadian heavy crude oil resulted in CA$20.6 billion in foregone revenues for the Canadian energy industry. This significant loss is equivalent to approximately 1 percent of Canada’s national GDP.
• In response to the drastic price discount for Canadian crude in late 2018, the Alberta government introduced a temporary production limit on oil producers. Since the initial curtailment measure was implemented in 2019, the price differential has narrowed. However, building new export pipelines remains the only long-term solution to ensure that oil producers receive fair value for their products.
• Overall, given the accumulation of lost potential revenue for the energy sector in recent years and the staggering loss in 2018 alone, the case for expanding Western Canadian oil pipeline capacity is critical.