Currently, oil from Western Canada is selling at historically low prices compared to international prices. On November 12, 2018, the international benchmark price for oil, West Texas Intermediate, closed at US$59.03. The price for Western Canadian Select oil, however, stood at a mere US$13.44.
While this differential (i.e. difference in price) is partly due to transportation costs and oil quality differences, a major reason is that Canada simply doesn’t have enough pipelines to get its oil to markets that would allow it to gain better prices. Jonathan Stringham, manager of fiscal and economic policy at the Canadian Association of Petroleum Producers explains the problem, how much it is costing Canadians and what needs to be done to fix it.
Differentials have been very, very high lately, largely due to that we supply a single market and we’re seeing pipeline constraints.
The single market that we’re supplying is the United States and largely the refining complex of the Midwest. With historic outages in the Midwest, we’re seeing the price that we’re getting substantially discounted to the world price of oil. High differentials are costing Canadians about $30 million a day.
The impact on Canadians for a high differential is big. It has an impact in terms of foregone royalties, foregone taxes. These are –royalties in particular pay for schools, hospitals, parks that we all enjoy as Albertans and Canadians. The high differential also has an impact in terms of the job impact to this sector as well as the jobs created by this sector.
To ensure Canadians get full value for our resource, we need to diversify our markets. We currently have one market that we supply with our crude oil. We need to be able to supply Asia in particular – China and India – as well as we need to build more pipelines. Pipelines are the most safe and efficient way to transport crude oil to both markets that we’re looking at.
Canadian oil in global markets is important. Canadians respect the rule of law, environmental stewardship and are very innovative in how they produce this oil.