Bill Doskoch: Media, BPS*, Film, Minutiae

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No $15 billion annual oil price benefit from TMX, analysis claims

An analysis done of the Alberta budget by the National Observer says the Trans-Mountain Expansion pipeline will provide no annual benefit to Alberta’s economy, let alone $15 billion annually.

From the National Observer (“Premier Notley’s claimed $15 billion annual benefit from Trans Mountain exposed as false by her own budget“):

Alberta Premier Rachel Notley has consistently repeated that the Trans Mountain pipeline expansion is worth “about $15 billion a year” — a figure her office says she picked up from a Scotiabank report released last February.

The Scotiabank figure has been discredited. The bank ignored how the industry actually works to develop its claim and Ms. Notley knows it.

According to Rachel Notley’s budget, the Trans Mountain pipeline expansion will produce no benefit to oil prices at all.

Ms. Notley’s basis for asserting an economic benefit from the construction of Trans Mountain’s expansion rests on the premise that there is a lack of pipeline capacity available to deliver heavy oil to market, and this lack of capacity leads to a widening in the natural light-heavy price discount as measured by the spread in price between West Texas Intermediate (WTI) and Western Canadian Select (WCS). This widened WTI-WCS spread is then used as a proxy price applied to all barrels of heavy oil produced as if they were all exposed to spot market pricing.

Very few barrels of heavy oil produced are actually exposed to the light-heavy differential. Spot market barrels — those barrels not protected by contracts, sold into the refineries owned by producers, or barrels that make their way to the US Gulf Coast — are estimated at fewer than 400,000 a day. That’s a far cry from 2.1 million barrels a day, which is the figure used to come up with the erroneous $15 billion.

It is a fact that a lack of pipeline takeaway capacity can impact the size of the discount price paid for heavy oil as compared to light, but pretending this in the only factor at play, as Ms. Notley does, is deliberately irresponsible. Many other forces, including supply and demand for heavy oil, refinery capacity available to process it, and seasonality, affect the price heavy oil will sell for in the market.

Thu, June 7 2018 » * Big Picture Stuff, Main Page