Canadian oil has been setting some records over the past few years but in all the wrong ways. In late 2018 for example, the differential between WCS and WTI set a record high, reaching a $50 price differential.
And just recently another unwanted record was set for WCS. Amid the coronavirus outbreak and OPEC+ price war, it was selling at a record-low of around $5 per barrel at the end of March 2020.
This discount is a disaster for Canada's economy and it's paramount that our country solve this problem as quickly as possible.
WTI vs. WCS - oilprice.com
What is Western Canadian Select?
WCS is the largest commercial stream of heavy oil in Canada and one of North America’s largest heavy oil blends. It has an API Gravity of roughly 20°, a sulphur content around 3.5% 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) which are frequently used as a reference price for buyers and sellers of oil around the world.
Like WCS, WTI is a blend of several domestic streams, but of sweet light crude oils originating from plays in the U.S. instead. WTI has an API Gravity of around 0.25 and an API Gravity approaching 40°.
Some WTI streams are produced in landlocked regions of the United States which then are collected at facilities in Cushing, Oklahoma, while others are produced in states with access to the coastline. This oil is then shipped via pipeline to facilities along the U.S. Gulf Coast for refining, sale and transport to global markets.
The "Oil Discount" Problem
Main reasons why the oil price discount exists:
- limited pipeline capacity to ship WCS to market
- a lack of access to international markets other than the U.S.
- sulphur content and higher API density of WCS
WCS is the main blend of heavy crude that Canada sells to the world - or we should say to the United States, which accounts for 96% of Canada's crude oil exports. Without access to other markets, Canada really has no choice but to sell most of its oil at whatever price buyers in the U.S. are willing to pay.
Canada is Losing Billions Annually
In 2018, Canadian exports of heavy crude oil approached 3 million barrels per day. With a discount of anywhere between $15 (April 2020) to $55 (October 2018) per barrel, it's easy to do the math on just how much money Canada is losing.
According to Scotiabank, Canada’s economy lost 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.
With a record setting price differential of USD $55 in October 2018, that figure was much higher – at anywhere between $80 and $100 million a day. Frank McKenna, deputy chairman of the TD Bank, said that his company found that the price differential cost Canada nearly $117 billion over the past seven years.
To add, because of a lack of pipeline infrastructure connecting the east and the west, Canada buys up to $300 million of Saudi oil every month at the Irving Refinery in New Brunswick.
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 when it could be buying its own for a much lower cost. Why!?
Canada’s Economy is Propped Up by Natural Resources
With WCS prices heading even lower since, the 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.
Now in March and April of 2020, it's already happening. Suncor has shut down one of its largest operations while Athabasca Oil Corp. is doing the same. Selling a barrel of oil for less than a coffee is just not economically feasible by any means.
Canada’s natural resource sector employs over 1.8 million Canadians and generates about 17% of the national GDP. The oil and gas sector and its components account for hundreds of billions of economic activity in Canada, and it's just not feasible to think about going without it.
Make a Difference for Canada’s Economic Future & Prosperity
All Canadians 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 our energy companies produce oil and gas to some of the highest environmental and human rights standards in the world.
The Trans Mountain Expansion, Enbridge Line 3 and Keystone XL are three pipeline projects that if built, according to Scotiabank and other sources, could shrink the WCS discount considerably.
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 sector and say enough is enough! You can start doing this on your own today: