Oil sands producers could feel squeeze as pipeline capacity tightens – by Claudia Cattaneo (National Post – November 29, 2012)

The National Post is Canada’s second largest national paper.

Plans are under way to build oil pipelines south, west and east, but even if they are successful they’re not going to alleviate today’s problem: Many of Canada’s oil pipelines are full and it’s only a matter of time before they choke off oil growth.

Already, analysts are warning the next steps will be production shut-ins and the rationalization of oil sands projects so only the less expensive go ahead.

Coping strategies are expected to come into focus as producers announce their investment plans for 2013 over the next few days and weeks, starting with Canadian Oil Sands Ltd. on Thursday. Pipeline capacity has been getting tighter because of surging production from Alberta’s oil sands and from tight oil fields across North America.

Space will be substantially smaller than demand in December, when Enbridge Inc. will “apportion” space on a number of its key pipelines – Line 5, Line 14, Line 6B, Line 6A/62, Line 4/67, Line 4. Kinder Morgan Inc. is apportioning space so that only 30% of producers’ hoped-for volume gets into its regularly oversubscribed TransMountain pipeline in December.

“It’s no secret that there is pressure on the system and that we are full,” said Graham White, spokesman for Enbridge.

The apportionment is significant and will mean discounts on Canadian oils could get worse into January and “potentially force some producers to shut in production,” Peters & Co., the Calgary energy investment bank, said in a report.

CIBC World Markets analysts expect discounts between Canadian oils and West Texas Intermediate (WTI) to persist throughout next year.

“This differential has been volatile in 2012, but we believe it will be an even bigger issue in 2013. Why? Because there are only two pipelines that connect from the North of PADD 2 [in the U.S. Midwest] to Cushing (Keystone and Spearhead) and both are full. Unfortunately, this will be the case until Flanagan South comes on in mid-2014 and the full Keystone XL build in 2015 (hopefully!),” they said in another report.

Canadian heavy crude sold at a discount of more than US$30 a barrel under the U.S. benchmark, WTI, this month compared with around US$15 only a month earlier.

For the rest of this article, please go to the National Post website: http://business.financialpost.com/2012/11/28/oil-sands-producers-could-feel-squeeze-as-pipeline-capacity-dwindles/

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