If you follow the discussion on Canadian energy and the economy, chances are you’ve heard about the record setting price differential between Western Canadian Select (WCS) and the West Texas Intermediate (WTI) benchmark.
This discount on WCS has a profound effect on Canada’s economy; millions of dollars in government and private sector revenues are lost every day. You see, WCS is the main blend of heavy crude that Canada sells to the world. So, without access to other markets than the USA, Canada really has no choice.
What is Western Canadian Select?
WCS is the largest commercial stream of heavy oil in Canada. WCS is one of North America’s largest heavy oil blends and is comprised of:
- Non-upgraded bitumen produced from the oil sands in Alberta
- 20 heavy conventional oil streams produced in Western Canada
- Upgraded bitumen, also known as light synthetic crude oil (SCO) usually from mining facilities
- Diluent or condensate to meet pipeline viscosity requirements for transportation
What is West Texas Intermediate?
WTI stands as one of the three primary benchmarks (WTI, Brent, Dubai) that are frequently used as a reference price for buyers and sellers of oil around the world. Similar to WCS, WTI is a blend of several U.S. domestic streams of sweet light crude oils.
Most of the WTI streams are produced in landlocked regions of the United States, which then are collected at facilities in Cushing, Oklahoma. This oil is then shipped via pipeline to the Midwest and Gulf Coast for refining, sale and transport to global markets.
Current Trading Prices
Currently, WCS is trading at a huge discount compared to the WTI benchmark – at more than $50 USD as of October 11th, 2018. The main causes of this include:
- increased production from Canadian energy companies
- limited pipeline capacity to ship WCS to market
- a lack of access to international markets other than the United States.
The United States buys around 98% of the oil Canada sells. With no other customer, the price that Canadian producers sell their product for is vastly discounted. This has resulted in massive financial loss for both government and the private sector over many years and will continue if Canada doesn’t smarten up.
Canada is Losing Billions Annually
According to economists at Scotiabank, Canada’s economy could lose up to $15.6 billion in 2018 because of the massive discounts on Canadian heavy oil. This estimate was done using a $24 USD differential per barrel.
Today, with a record setting price differential (USD $55 as of October 12th, 2018), that figure is much higher – at anywhere between $80 and $100 million a day.
Frank McKenna, deputy chairman of the TD Bank, said that his financial institution found that the price differential has cost Canada nearly $117 billion over the past seven years.
Meanwhile, because of a lack of pipeline infrastructure connecting the east and the west, Canada buys up to $300 million of Saudi oil every month. Over the long term, Canada has spent $20.9 billion on Saudi crude between 2007 and 2017 despite sitting in an ocean of its own oil in Alberta.
Canada buys this Saudi oil at full market price without a discount when it could be buying its own for a much lower cost. And where are the protestors?
Canada’s Economy is Dependent on Natural Resources
With prices heading even lower since, the price differential may soon enough cause Canadian producers to re-evaluate the economic viability of their oil-producing operations and shut down all together. This would have a rippling effect through Canada’s economy.
Canada’s natural resource sectors are responsible for employing nearly 2 million Canadians and generating about 17% of the national GDP. Also see these 10 Reasons Why Canada’s Natural Resource Sectors are Critical to Canada.
The Trans Mountain Expansion, Enbridge Line 3 and Keystone XL are three pipeline projects that if built, according to Scotiabank, could shrink the WCS discount considerably.
However, constant delays and new regulatory measures introduced by government, such as Bill C-69, that move the “goal posts” for major energy projects threaten to kill Canada’s most precious industry all together.
Make a Difference for Canada’s Economic Future & Prosperity
As Canadians, we all should be worried about the impact that the WCS vs. WTI price differential has on our country. We continually choose to shoot ourselves in the foot by not building already approved pipelines while failing to recognize that Canadian oil and natural gas companies produce their product to the highest environmental and human rights standards in the world.
Truth is that Canadian-produced oil and natural gas is a win for the global environment! Enough with letting special interest groups, many of whom get their funding from sources outside of Canada, dictate what our governments do with energy projects that are critical to our future economy and prosperity!
What Can YOU Do?
We owe it to ourselves, our children and grandchildren to stand up for our natural resource sectors and say enough is enough! You can start doing this on your own today:
Join Us @ Canada Action
Donate – send us a small financial commitment and help support the movement.
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