Canada Loses 10% Of Its Westen Canadian Production Due To "Technical Difficulties," As The Kuwaitis Would Say -- June 27, 2018

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RBN Energy: western Canadian Crude takeaway constraints to ease, but only temporarily.

The weeks-long shutdown at Syncrude Canada’s oil sands production facility in northeastern Alberta will alleviate pipeline takeaway constraints that have significantly widened the price spread between Western Canadian Select (WCS) and West Texas Intermediate (WTI) crude oil.

But when Syncrude returns later this summer, there’s every reason to believe that the constraints will too, as will the need for significantly more crude-by-rail shipments. Railed volumes out of Western Canada have been increasing in recent months, but not by enough to avert WCS-WTI differential blowouts to $25 and even $30/bbl.

The catch is that most of the rail-terminal capacity built a few years ago is mothballed, and that railroads are reluctant to dedicate more locomotives and personnel unless shippers make one-, two- or even three-year commitments to take-or-pay for that logistical support.

Today, we consider the ongoing challenges Western Canadian producers face in moving their crude to market.

The biggest news in the crude oil business the past few days was OPEC’s June 23 announcement that its members will be increasing their output by as much as 1 MMb/d.

But the runner-up was likely the news that Syncrude’s 360-Mb/d operation may be offline through the end of July — a shutdown triggered by a power outage.

Syncrude accounts for nearly 10% of Western Canadian production, and the suspension of flows from its production facility north of Fort McMurray, AB, opens up a lot of space on the region’s takeaway pipelines — pipelines that have been running at or very near capacity for months. Syncrude’s troubles and their effects on Western Canada’s takeaway constraints are very likely to be only temporary, though. The underlying problem — insufficient pipeline capacity and profit-sapping differentials — isn’t going away.