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ECONOMICS
Bloomberg Businessweek
October 8, 2018
39
BEN NELMS/BLOOMBERG; DATA: COMPILED BY BLOOMBERG
1/4/16 10/1/18
$40
20
0
○ Price premium per
barrel of benchmark U.S.
crude oil over Canadian
crude oil
“It’s a great tragedy that in this environment
where the commodity demand continues to grow
unabated, Canada is missing out,” says Pourbaix.
The industry has waged a yearslong battle
to add transport capacity with not much suc-
cess. The most visible symbol of this strug-
gle is Keystone XL: President Barack Obama
rejected the $8 billion project, bowing to pres-
sure from environmental groups and indigenous
communities on the pipeline’s path. TransCanada
Corp. won approval from the Trump administra-
tion last year, but construction may not start until
next year—about a decade after the project was
irst proposed.
Pipelines that don’t stray outside Canada’s
borders—like Trans Mountain—have also run into
opposition. The proposed Northern Gateway
line, which, similar to Trans Mountain, would
have carried crude to a shipping terminal on the
Paciic coast, was halted by Prime Minister Justin
Trudeau’s government in 2016. And TransCanada
pulled the plug on its proposed Energy East line last
year after pushback from green groups in Quebec.
Strangled by the pipeline shortage, the price of
Canadian crude has climbed less than 5 percent in
the past two years, compared with 57 percent for
the U.S. benchmark. The $39-a-barrel discount to
the U.S. price on Oct. 1 is near the widest it’s been in
about ive years. (It also relects that Canada’s heavy
grade of crude costs more to process.)
Lower prices represent a missed opportunity
for Canada, whose economy depends heavily on
the oil and gas industry. U.S. crude production
has more than doubled in the past decade, from
about 5 million barrels a day to more than 10 mil-
lion this year. In Canada, output has climbed a
more modest 64 percent, to 4.46 million barrels,
over the same period.
Suncor Energy Inc. CEO Steve Williams, at a
ceremony in early September to celebrate the open-
ing of Suncor’s Fort Hills oil sands mine, a C$17 bil-
lion ($13.3 billion) project in northern Alberta, said
his company probably wouldn’t attempt another
large-scale undertaking in the next decade. “If
you’re coming to that point where you need to
make a decision for the next growth phase, you
need to have conidence that the next pipelines are
coming,” he said in an interview.
In previous oil downturns, the industry had
to contend only with supply and demand luc-
tuations, says Brett Wilson, chairman of Prairie
Merchant Corp., a private merchant bank, and
Canoe Financial LP, an investment management
irm. The current obstacles are deeper and more
permanent. “We seem to be ighting structural
issues now,” he says. “Canada has been delinked
from the global markets, and we are no longer par-
ticipants in the normal cycle of energy.”
Wilson blames the government for giving
environmental concerns too much weight.
Operators of oil
sands mines like Fort
Hills in Alberta are eager
for new outlets for
their crude