- A new study released this week by conservative think-tank the Fraser Institute calculates that Canadian oil producers missed out on $20.62 billion in 2018.
- Compared to the West Texas Intermediate benchmark, in the last year Canadian heavy crude traded, on average, at a discount of $26.50 U.S. a barrel.
- This is a huge dive from the five previous years, when Canadian heavy crude traded at an average of just $11.90 U.S. a barrel less than West Texas Intermediate.
Canada is an oil-rich area with lots of demand; however, the Albertan oil industry has long been plagued by insufficient pipeline volumes. The pipeline capacity deficit has negatively impacted the Canadian economy in a number of ways, according to the Fraser Institute.
“Canada’s lack of adequate pipeline capacity has imposed a number of costly constraints on the country’s energy sector, including overdependence on the U.S. market and reliance on more costly modes of energy transportation. In 2018, these factors, coupled with the maintenance downtime at refineries in the U.S. Midwest, resulted in significant depressed prices for Canadian heavy crude (Western Canada Select) relative to U.S. crude (West Texas Intermediate), and other international benchmarks,” states the Fraser Research Bulletin.
Fraser Institute went on to say that their calculations also found that if Canadian oil had been able to be transported in volumes corresponding to their current levels of production, Western Canadian Select would have traded at an average price of $52.90 U.S. a barrel during 2018 instead of the actual average price from last year, which clocked in at just $38.30 a barrel.
These revenue losses pose a significant threat to the health of the Canadian economy. Since oil is one of the country’s most valuable commodities for export, the Fraser Institute reports that the overall loss of revenue from the oil industry in 2018 represents approximately one percent of the nation’s gross domestic product (GDP).
To keep up on pipeline related news, check the Submar blog regularly, where we’ll keep you up to date.