Canadian heavy crude is finally trading like a “North American” grade, moving in tandem with U.S. sour crudes sold on the Gulf Coast after Enbridge Inc (ENB.TO) expanded its Line 3 pipeline late last year.
Unfortunately for Canadian producers, the Gulf is awash in sour crude. Millions of barrels of sour crude are flooding the market from storage caverns in Louisiana and Texas. Heavy grades like Mars and Poseidon at the U.S. Gulf Coast, the world’s largest heavy crude refining center, are languishing. Western Canada Select sold more than 3,000 km (nearly 2,000m) away in Hardisty, Alberta, is getting dragged down with them.
Canada exports around 4.3 million barrels per day (bpd) to the United States- U.S. Energy Information Administration (EIA) data. Until last year demand to ship crude on export pipelines exceeded capacity, leaving barrels bottlenecked in Hardisty.
Canadian production is forecast to rise 200,000 bpd by the end of 2022, according to the EIA. That could cause bottlenecks to re-emerge until the Trans Mountain pipeline expansion to Canada’s Pacific coast is completed in 2023, adding 600,000 bpd of capacity, said RBN Energy analyst Robert Auers.
However, a massive blowout in differentials, like we saw in 2018, is unlikely since producers are likely to be prepared for such a scenario and quickly ramp up crude-by-rail volumes in anticipation of such an event,” Auers said.