Oilsands price discounts expected to rise as output exceeds export pipeline room

An RBC report warns that Canadian oilsands producers face rising price discounts as growing production ”materially exceeds” export pipeline capacity to the United States in the first quarter of 2018.

RBC Dominion Securities says production from the oilsands of northern Alberta is set to climb by nearly 620,000 barrels per day over the next four years to 3.3 million barrels per day in 2021 before levelling off.

It says about 75 per cent of the growth will be in raw bitumen — which must be blended with light petroleum products to flow in a pipeline, thus increasing volume by another 30 to 40 per cent.

The difference between Western Canadian Select, a diluted bitumen crude, and West Texas Intermediate, a North American benchmark for conventional oil, will widen to average US$15.50 per barrel in 2018 and US$17.50 per barrel in 2019, says the report by bank analyst Greg Pardy says.

On Thursday, the WCS-WTI differential was US$16.95 per barrel, swollen by recent events including reduced volumes on the Keystone pipeline system between Alberta and the U.S. Gulf Coast after a leak in South Dakota.

The wider discount for Canadian bitumen will be driven in part by increasing reliance on crude-by-rail shipments, which RBC estimates will cost producers an average of about US$4.50 per barrel more than shipping by pipeline.

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