Good News for Alberta Heavy!

The takeaway pipelines for Alberta oil are in headlines almost every day. Lack of the infrastructure to connect Edmonton to the world or even to the Eastern Canada where a refining capacity of 700,000 is available seems to have roots in the past (The Globe & Mail). Nevertheless, the matter is a national priority now.

TransCanada’s announcement of investing about $12b in Energy East project (read in Alberta Oil) was a new hope. The project intends to build a takeaway capacity of about 1.2 million bpd to ship Western Canada crude to the East Canada refining hub. This project will reduce Canada’s crude import for refineries located in the Eastern provinces while reducing the pressure on the land-locked bitumen exploitation project in Alberta. The Energy East project will be in addition to the Keystone XL and Northern Gateway projects.

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The above besides Enbridge’s initiation to convert a gas pipeline to oil to ship 600,000 bpd of Bakken crude to Gulf Coast is encouraging for producers in Western Canada. But will all the announced projects be sanctioned, and if so, will their combined capacity be enough to reduce the heavy oil differential from current $30-$35/b back to a more reasonable range of $10-$20? This is a big deal as an estimated $15b will be stripped off Canadian economy because of the bigger than usual differential in 2013 (Global & Mail). At Alberta government (as well as Ottawa), there will be a budget deficit in 2013 as this year’s budget has been planned with higher WTI and lower differential.

The good news is that market dynamics has resulted in reduction of differential to an extend that in July’13 Western Canada Select Blend was sold for $85/b (Calgary Herald). How much the news of the future takeaway pipelines has pushed the heavy price up? What other factors are involved in the price improvement? How long the Canadian heavy blend will stay at $85/b range?

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