Canadian Mega-Projects May Boost Alberta Oil Price, Starting in 2017

Researched by Industrial Info Resources (Sugar Land, Texas)--Increasing market access traditionally increases the price of oil from production regions. Conversely, lower market access has pushed prices lower, due to producers having to sell at whatever price is necessary to move their oil. This is the situation in Alberta, where crude oil prices have been lower than other production areas due to a lack of market access--specifically, a lack of pipelines out of Alberta to the Gulf Coast, Midwest or East Coast regions.

Pipelines, being the cheapest mode of transporting oil, are now very attractive with oil prices lower due to OPEC's price setting--which is why one would expect to see a lot of pipeline projects to improve market access for the Alberta oil sands. However, the planned mega-projects for those pipelines are not set to become operational until mid-2017 at the earliest, with the largest now pushed out until 2020. However, with new access, an increase in the Canadian oil price would follow, which would increase the likelihood of investment in oil sands production.

To tide it over until the big wave of mega-project startups begins in 2017, Enbridge Incorporated (NYSE:ENB) (Calgary, Alberta) is finishing up its second-phase expansion of its Alberta Clipper pipeline, which will add 230,000 barrels per day (BBL/d) of takeaway capacity. Like most oil, this route's final destination is the Gulf Coast refining hub, but Enbridge's pipeline network in the Great Lakes and Midwest means that Chicago-area refineries may have access to this new source of crude as well. Enbridge owns two of the four big mega-projects that will become the expressways out of Alberta. It's Line 3 Replacement project is expected to add 830,000 BBL/d of takeaway capacity when it begins operations at the end of 2017, according to Industrial Info, and the embattled Northern Gateway project would take 525,000 BBL/d of Alberta crude oil west for export to Asian markets at the end of 2019.

Another project following a westward path is the TransMountain Expansion project (TMEP 890) by Kinder Morgan Incorporated (NYSE:KMI) (Houston). This project would add 590,000 BBL/d of takeaway capacity, transporting Alberta oil sands crude to the West Coast for export. Like the Northern Gateway, the TMEP 890, or TMX 2, as it was originally known, has been embroiled in regulatory permitting for years.

In the interim, the Keystone XL (KXL) pipeline project by TransCanada Corporation (NYSE:TRP) (Calgary, Alberta), which has become the poster child for regulatory hurdles, may be completed and placed into service in mid-2017. Completion of the KXL would add 500,000 BBL/d of takeaway capacity for Alberta producers looking to ship directly to the Gulf Coast.

After KXL, TransCanada's next big project is the Energy East Pipeline. This mammoth pipeline is expected to carry 1.1 million BBL/d of crude oil from Alberta to Quebec and New Brunswick for both local refiners and export. The biggest of the Canadian mega-projects, Energy East is not set to be completed until 2020, due to a delay in permitting regarding a proposed terminal in Quebec and the associated necessary re-strategizing.

All together, the period from mid-2017 to the end of 2020 should see more than 3.5 million BBL/d of takeaway capacity for the Alberta oil sands. Current takeaway capacity for the region sits at just more than 1.9 million BBL/d. While this capacity increase may happen too late, perhaps, to capitalize on today's low oil prices, it could help to bridge the price gap between Canada and the rest of North America's crude oil.

Industrial Info Resources (IIR), with global headquarters in Sugar Land, Texas, five offices in North America and 10 international offices, is the leading provider of global market intelligence specializing in the industrial process, heavy manufacturing and energy markets. Industrial Info's quality-assurance philosophy, the Living Forward Reporting Principle™, provides up-to-the-minute intelligence on what's happening now, while constantly keeping track of future opportunities.