Trans Mountain pipeline expansion will boost Canadian oil prices ‘for years’: MEG Energy

Prices for Canadian heavy oil increased, and the WCS-WTI differential narrowed, in April in anticipation of the start-up of the pipeline expansion.

The recently completed Trans Mountain pipeline expansion will boost Canadian oil prices for “years” to come, an executive with oilsands producer MEG Energy Corp. said Tuesday.

“It is great for industry and Canada to have that tremendous asset available,” said MEG’s vice-president of marketing Erik Alson during a conference call with analysts to discuss the company’s first-quarter earnings.

Canadian heavy oil has historically sold at a discount to lighter U.S. crude, in part due to differences in product quality and transportation costs, but also due to a lack of pipeline export capacity that has limited market access for Canadian oil.

At times, that discount has been severe.

Rising oilsands production and limited pipeline space in the fall of 2018 caused Canada’s heavy oil benchmark price, known as Western Canada Select, to sell at nearly US$50 per barrel below the U.S. benchmark West Texas Intermediate. The government of Alberta ended up curtailing oil production in the province for a time to address the problem.

A similar problem occurred in 2012-2013, prompting then-Alberta premier Alison Redford to blame what she called the “bitumen bubble” for a massive shortfall in government revenues.

A 2020 study by IHS Markit estimated that insufficient pipeline export capacity resulted in US$14 billion in lost value to Canada between 2015 and 2019.

But the Trans Mountain pipeline expansion is expected to change things.