Not getting off ‘light’: Canadian light oil enduring same discounts hobbling oilsands crude

Export pipeline and U.S. refinery constraints mean continued lower pricing

When your only customer is also a stout competitor, it’s bad for business.

Canada’s heavy crude producers in the oilsands have known it for years, absorbing a hefty discount to bring their product to market—and they’re not the only ones.

The price difference between West Texas Intermediate and Edmonton Light oils grew to more than US$7 per barrel in January. That’s nearly double the gap that existed in the fourth quarter of 2017, according to a report recently published by Deloitte.

Nearly 20 percent of Canada’s oil production—or 850,000 barrels per day out of a 4.5-million bpd total—is conventional light oil.

“We really only have one major market”—the United States—“and that major market has been developing their own resources, requiring ours less and less,” says Deloitte partner Andrew Botterill.

“There’s optionality for them to buy Canadian oil volumes or not . . . and when there’s that optionality, it ends up eroding value for Canada.”

Currently, says Deloitte, there’s less room for Canadian crude in U.S. refineries, which are operating at a 13-year high as a result of increased American production in 2017.

The U.S. is expected to become the world’s top oil producer by 2023. Meanwhile, in Canada, pipeline capacity constraints are unable to handle rising oil production.

Deloitte does predict some potential relief for Canadian producers, however:

• The new Sturgeon Refinery, near Edmonton, will ramp up production this year, absorbing some of Alberta’s surplus crude;
• More refinery room is expected to become available in the U.S. later this year; and
• Alberta’s provincial government is encouraging the construction of partial upgrading facilities in the province.

In the world's conversation about energy, one point is beyond debate: Energy makes a vital contribution to people's quality of life, to society and to human progress. This is true today, and it will remain true in the future. That's why Energy Matters was created. We believe it's important to equip people with unbiased information so they may form opinions, join the conversation and feel confidence in the work and accomplishments of the energy sector. Energy Matters is an initiative that provides transparent information and perspective on energy. Here, we'll cover a range of topics: the scale of global energy; the ways energy is sourced and produced; current energy technology; forthcoming innovations; the world's future energy needs; and the sustainable sources of energy that will fill them. Because energy matters to everyone, we hope you'll rely on Energy Matters as an ongoing source of balanced information.