The Problem

The problem of Western Canadian Oil's lack of market access

  • Discount for Western Canada Select and its impact on the oil industry

    Western Canadian Select (WCS) crude generally trades at a significant discount to West Texas Intermediate (WTI) WCS was trading at $44.51 in January 2019, a $10 discount to WTI, but had traded as low as $26 a barrel in late 2018, while benchmark West Texas Intermediate crude was trading att $71.98. At one point, the price differential sat at $52 a barrel  lack of pipeline capacity to move oil out of Western Canada.

    Every $1 increase in the price discount for Western Canadian heavy oil over the course of a year will cost the Alberta treasury alone about $210 million. The impact of the growing discount on Canadian oil affects petroleum producers.

    Less cash flow for producers means less drilling activity and fewer jobs in the sector. In 2018, Scotiabank forecast the Canadian oilpatch would be stuck for at least 18 months in a period of constrained takeaway capacity, potentially shaving $15.6 billion in revenues from the sector this year.

  • The cost to Canada of the discounted price

    Exactly what is the cost to the Canadian economy of the lower price Canadian oil receives because of the lack of pipelines to provide access to markets? The total cost includes lost income for oil producers, foregone spending by oil producers, and lost taxes and royalties to all levels of government.

    The oil price differential costs the Canadian economy up to $50 million per day Getting an exact number on how much discounts are costing Canada is all but impossible thanks to ingrained sector secrecy about transportation and marketing, he said, adding it’s entirely possible the real costs could be as high as $100 billion per year.

    In Saskatchewan, Western Canada’s other major oil-producing province, each $1 change in the differential is equivalent to about $15 million a day in revenue, based on an assumed WTI price of US$58 per barrel, the government says.

    Finance Minister Donna Harpauer has estimated Saskatchewan industry’s lost revenue would be about $7.4 billion. The cost to the entire Canadian industry could be as high as $100 billion.