A lack of pipeline capacity in Western Canada is increasingly costly for oil producers and ultimately, all Canadians. In a recent interview with the Calgary Herald, Canadian Association of Petroleum Producers (CAPP) CEO Tim McMillan calls the current situation “a crisis.”

Due to a lack of pipeline capacity to move oil to tidewater and international markets paying the world price, most Western Canadian oil is sold at a discount into the crowded Midwest United States market. The situation is more challenging as Western Canadian oil production increases year to year. Production now exceeds Canadian pipeline capacity and cannot be alleviated without more pipelines or increased reliance on oil-by-rail transport.

The current price disparity (most recently reported by Bloomberg) reflects a lost opportunity for Canadian producers to get the optimal price for their oil products when selling into the short-term market – or to demand better prices on long-term contracts. The Alberta government estimates every drop in the price of a barrel of oil costs the province’s treasury $210 million in lost revenue.

The Trans Mountain Expansion Project is one of the solutions, increasing system capacity by 590,000 barrels per day to tidewater. Access to international markets gives Canadian producers the leverage necessary to command better prices for crude products.

CAPP reported that Canada’s oil supply in 2017 – comprised of oil production and diluent – was 4.2 million barrels per day (b/d). This exceeds available pipeline capacity. CAPP forecasts oil supply will rise to 6.2 million b/d by 2035.

As this CBC story noted on October 1, 2018, crude oil-by-rail shipments in Canada have increased dramatically since Trans Mountain decided in 2012 to proceed with the Expansion Project. This is due to crude production growth in Alberta and a lack of new pipelines to support it. Pipelines are also a safer mode of transport. A 2018 study in the newsletter of the International Association for Energy Economics, comparing six years of oil transport data for rail and pipeline in the United States, concluded “the risk associated with shipping crude oil is noticeably larger for rail deliveries than for pipeline deliveries.” The study for the 2010-2016 period found the annual spill rate was as much as three times higher for oil-by-rail compared to pipeline.