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Transportation bottlenecks, reduced U.S. refining capacity counter increased production
CALGARY, ALBERTA (October 4, 2018) – Canadian heavy crude producers are unlikely to benefit in the short term from rising global oil prices as increased production and limited transportation options have created a glut of oil in Western Canada, according to the latest forecast from Deloitte’s Resource Evaluation and Advisory (REA) group. Despite growing demand for crude oil in the U.S. coupled with lower inventories and reduced global production, the WCS differential to WTI has widened to a five-year high and Edmonton light differentials have swelled to over C$20 per barrel.
“These extreme differentials, combined with a lack of major projects on the horizon, suggest market optimism for Canadian crude has declined over the past few months,” says Andrew Botterill, Partner, Deloitte. “There simply isn’t enough pipeline or rail shipment capacity to get all the Canadian crude to market, leaving Canadian producers unable to take advantage of higher prices and increased demand in the United States as its economy continues to grow.”
Botterill says the Canadian heavy crude prices are likely to be further affected over the next six months as several U.S. refineries undergo scheduled maintenance, creating offline periods when some Canadian heavy crude will have nowhere to go.
The Deloitte forecast notes that OPEC is producing much less oil than its targeted cut in production, caused in part by historically low production levels in Venezuela and reduced Iranian oil exports in advance of renewed U.S. sanctions due to take effect in November. As a result, both OPEC and non-OPEC members are determining new country production volumes to try to help alleviate current global supply shortages.
Similar to the situation affecting crude oil prices, Canadian natural gas prices are currently at a very large differential to Henry Hub. Deloitte’s preliminary supply study of the long-term effects on prices of the proposed LNG Canada project, which is expected to make a final investment decision in the coming months, suggests the increased capacity of the project is unlikely to put significant upward pressure on gas prices in Alberta or British Columbia or to increase demand for natural gas from suppliers who are not part of the project.
“We believe that the partners in LNG Canada will be able to fill a two-train facility for more than 20 years solely with their existing production and future drilling,” adds Botterill. “Canada is in an oversupply market right now, so we don’t expect any significant rise in prices unless LNG Canada expands to three or four trains – which would be well beyond the current 2022 timeline – or if additional LNG facilities are approved and there is a corresponding increase in demand for Canadian natural gas.”
For Deloitte’s complete oil and gas price forecast dated September 30, 2018, visit our website.
About Deloitte
Deloitte provides audit & assurance, consulting, financial advisory, risk advisory, tax and related services to public and private clients spanning multiple industries. Deloitte serves four out of five Fortune Global 500® companies through a globally connected network of member firms in more than 150 countries and territories bringing world-class capabilities, insights and service to address clients’ most complex business challenges. To learn more about how Deloitte’s approximately 264,000 professionals—9,400 of whom are based in Canada—make an impact that matters, please connect with us on LinkedIn, Twitter or Facebook.
Deloitte LLP, an Ontario limited liability partnership, is the Canadian member firm of Deloitte Touche Tohmatsu Limited. Deloitte refers to one or more of Deloitte Touche Tohmatsu Limited, a UK private company limited by guarantee, and its network of member firms, each of which is a legally separate and independent entity. Please see www.deloitte.com/about for a detailed description of the legal structure of Deloitte Touche Tohmatsu Limited and its member firms.
For more information, please contact:
Jerrica Goodwin
On behalf of Deloitte
403-616-0745 | Jerrica.Goodwin@hkstrategies.ca
Marilyne Plouffe
Media Relations, Deloitte
514-393-5471 | mplouffe@deloitte.ca
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