Canada Needs More Pipeline Takeaway Capacity

As oil and natural gas production has increased across North America, so too has the need for greater pipeline capacity to transport these resources. Canada’s limited pipeline takeaway capacity has created long-standing issues for the country, impeding its growth into new markets and making it over dependent on the United States as its main market.

Lacking Pipeline Capacity Harming Canada’s Economy

Canada has enjoyed steady and continual growth in its oil production, but its capacity to bring its oil to markets has not grown proportionately—in September 2018, Canada was producing 4.3 million barrels per day, but pipeline capacity was at 3.9 million barrels per day.

This has led to an oversupply of oil unable to reach outside markets, which resulted in decreased prices for Canadian crude. Prices became so low in Alberta—hitting $14 per barrel—that the provincial government made the controversial decision to curtail oil production to reduce the price difference between Western Canadian Select (WCS) and West Texas Intermediate (WTI), a benchmark for Canadian crude oil which was trading around $67 per barrel at the time of curtailment. According to the Fraser Institute,

“[I]n 2018, the revenue that was lost due to capacity constraints in 2018 alone was roughly CA $20.6 billion.”

Without enough pipelines to move oil, producers have turned to rail export. Yet this form of transportation can be costly, and only makes economic sense when there is a wide enough price difference between WCS and WTI. The latest available data for Canadian crude oil exports by rail in October revealed that the country was continuing a three-month streak of declining exports, hitting only 270,000 barrels exported by rail for that month.

Activist Attempts Block Pipelines

Although additional pipelines would help Canada bring more oil and natural gas to new markets safely and efficiently, activists—some of which are funded with foreign money—have attempted to halt construction. These frequent and long-standing attempts have seen activists trying to block the shipment of construction supplies, conducting public demonstrations and—in a most dangerous move—physically tampering with active pipelines.

Majority of Canadians Support Pipelines

Polling has shown that a majority—65 percent—of Canadians either support or somewhat support new pipelines. Moreover, when asked about specific pipeline construction, polling finds that 53 percent of Canadians support the construction of the Trans Mountain pipeline expansion. This support is increasingly important as Canada has the potential continue as a top energy producer but must face increased competition from other countries.

Despite the amount of time it has taken to approve and build new pipelines to improve Canada’s takeaway capacity, there’s still optimism for 2020. Enbridge and TC Energy are using pipeline optimizing programs which increase the flow of oil in current pipeline infrastructure, adding an additional 150,000 barrels per day in takeaway capacity. Furthermore, a report from the Conference Board of Canada remains confident that Enbridge’s Line 3 will come online in 2021, adding another 370,000 barrels per day, followed by the Trans Mountain expansion which should increase barrels by 590,000 per day in 2023.

Building new infrastructure takes time, even without delays brought on by activists, but once complete, these new pipeline projects and efforts to increase capacity will help Canada better position itself as a global leader in oil and natural gas production.

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