Pipeline shortage resulting in lost revenue for Canada’s energy sector

A new report from the Fraser Institute finds that pipeline construction has not kept pace with oil production

A shortage of pipeline capacity will cost Canada’s energy sector $15.8 billion in lost revenues this year, according to a new study released Tuesday by the Fraser Institute.

“Without adequate pipelines to tidewater ports, Canadian oil producers are forced to sell their product in the U.S. at dramatically discounted prices, which results in substantial losses for the energy sector and the economy more broadly,” Kenneth Green, senior director of natural resource studies at the Fraser Institute said in a press release.

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The study, The Cost of Pipeline Constrains in Canada, found that pipeline construction has not kept pace as oil production in Canada ramped up in recent years.

“And despite approvals from review agencies, the status of several major pipeline projects remains uncertain,” the press release reads.

The report found that even after adjusting for quality differences and transportation costs, Western Canada Select, the heavy oil extracted from Canada’s oilsands, sells for much less than comparable oil from Texas. The price difference between Canadian and U.S. oil is currently $26.30 US per barrel, which, according to the think tank, will lead to a $15.8 billion loss for Canada’s energy sector.

“More pipeline capacity would not only benefit the energy sector and our economy, it would also benefit the environment because pipelines are safer than rail,” Green said. “For Canadians to continue prospering from our natural resources, the federal and provincial governments must work together to expedite the pipeline process and connect Canada’s oil producers with markets overseas.”

Here at home, Kinder Morgan’s Trans Mountain pipeline expansion project has faced a barrage of protests and the provincial government’s opposition to the projects has sparked a dispute with Alberta.

Last month the company announced that it was suspending all non-essential activities and spending on the project.

Also last month the B.C. government filed a reference question with the B.C. Court of Appeal to find out if the province has the jurisdiction to create a law requiring companies transporting hazardous materials, like diluted bitumen, to obtain a hazardous substance permit.

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