Moving Crude
Canada Stares Down a Serious Pipeline Bottleneck

Canada has the oil, but it doesn’t have the pipes to get that crude to market. That’s producing bottlenecks in the supply chain and headaches for producers that have struggled already to cope with discounts for their product. Reuters reports:

Until recently, pipeline space in Alberta has not been an issue as May wildfires took about half of the oil sands’ production capacity offline. But most of that production is now back, and more bitumen is set to come online in late 2016 and early 2017, without additional infrastructure to move it. […]

The main pipelines carrying heavy oil into the U.S. Midwest, including the Line 4 and 67 part of Enbridge Inc’s Mainline system, as well as TransCanada Corp’s Keystone pipeline, have no little to no space for additional barrels, according to four physical traders who move oil on those lines.

Unlike many other countries (like, for example, Japan), Canada’s problem isn’t one of resource scarcity, but rather of abundance. If you had to find yourself in a predicament, this is the sort you’d probably choose, but that doesn’t make it any less serious for Canadian energy security.

Canada needs to make building out the requisite pipeline infrastructure a top priority. This issue is only going to grow more pressing in the coming years, too—an industry group recently forecasted that Canadian oil production will grow by as much as one million barrels per day by 2030, a 28 percent increase. In Alberta, where this latest pipeline bottleneck looms, oil sands production is predicted to grow 42 percent by 2025. But Canada’s pipeline network is already effectively running at full capacity. Any significant increase in oil production is going to require a similar buildout in pipelines.

Of course, the Keystone XL pipeline could have been a great solution to this problem. Not only would it have helped ease the strain on Canadian infrastructure, but it also would have connected the “heavy” Albertan oil projects with American Gulf coast refineries that have been specifically set up to process that variety of crude. Greens sank this smart solution, mistakenly believing that making oil sands production more difficult (something the failure of Keystone has undoubtedly done) would keep that crude in the ground. That, of course, isn’t the case. The projects already underway have involved enormous up-front investments of time and money, and there’s still money to be made drilling those enormous reserves of oil.

The Trudeau administration has important work left to do. Canada is helping to make North America one of—if not the—most important regional energy producers in the world, but it needs to make sure it can get its natural resource bounty to market.

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