(EnergyAsia, March 29 2012, Thursday) — Western Canadian Select (WCS) crude prices will continue to weaken against West Texas Intermediate (WTI) and will sell for an average discount of US$27 below the US benchmark in 2014, predicts BENTEK Energy, a US-based energy markets information and analytics company.
Earlier this week, the Canadian discount surged above $30 a barrel, pushing the WCS to a bargain price of around US$75 a barrel at a time when Brent is holding around US$125 on the world markets and WTI remains supported at US$106.
In its latest report, “Crude Awakening: Shale Boom Hits Oil”, BENTEK attributed the declining value of the WCS blend to growing Canadian oil supply, flat demand from refiners and limited pipeline takeaway capacity.
The report said the health of Canada’s oil industry will largely depend on transportation capacity to the US over the next few years as its crude supply grow 31% to nearly four million b/d between 2011 and 2016 but demand from domestic refineries will remain flat.
BENTEK projects that western Canadian crude oil production will grow nearly one million b/d, mostly from the oil sands in Athabasca, Peace River and Cold Lake. A number of emerging unconventional oil plays also will add to this growth, including the Alberta Bakken, Cardium and Viking plays.
All these new flows will compete for pipeline space for delivery to the US Midwest and Gulf Coast for refining. This will lead to a 42% or 917,000 b/d increase in Canadian crude exports to the US, impacting the already constrained refinery and transportation markets.
“Currently, five of the six major pipeline systems that move crude across the Canadian-US border are full or constrained by downstream markets and export pipeline capacity will be limited until new pipeline expansions come online starting mid-year 2015. Until then, average annual crude prices for WCS could fall to as much as US$27 below the WTI benchmark. Light Syncrude prices also will face extreme pressure,” said BENTEK.
The sharply deteriorating value of the WCS blend underlines the urgency of Canada to diversify its crude oil exports from the US to Asia. Prime Minister Stephen Harper has made two trips to Asia in February and March to speed up Canada’s slow trade ties with the world’s fastest growing region, energy being a focus of bilateral discussions with the leaders of China, Japan, South Korea and Thailand.