Alberta Oil Producers Start to Sweat as Keystone XL Issue Heats Up

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The ongoing debacle over the expansion of pipelines from Alberta’s oil sands to refineries in the US Gulf Coast has been back in the news of late.

The pipeline is essential for the expansion of the tar-sands in the north of the Canadian province. The fallout from the past five years has contributed to sinking oil prices in the local pricing environment, causing headaches for Alberta oil sands producers.

With the region experiencing a major oil glut and with murmurs that North America’s ‘next big oil find’ could be off Newfoundland’s coastline starting to take shape, stakeholders from the mid-western province are starting to feel the heat.

Turning our attentions to the east for a moment; in January of this year we saw Exxon Mobil Corp give the go-ahead to inject $14 billion USD to pump oil out of Hebron’s offshore oil field off Newfoundland.

Just last week, Canadian energy reporter Jeff Lewis reported that an area equivalent in size to the Gulf of Mexico is being shopped around to international oil companies as a promising new deep water.

The crux the story was that the potential for expansion in Newfoundland could be enough to lure some investment away from Alberta, which is already at risk of diminishing returns up until 2017.

Back to Keystone XL and it has been widely reported that project sponsors TransCanada have been withstanding scrutiny at home regarding the serious impacts its expansion could have on global climate change.

Across the border in Nebraska and the timeline for construction there is being called into question. Nebraskan concerns relate to disturbing the state’s Sand Hills ecosystem, which is now forcing TransCanada to reconsider its route.

In the meantime, President Obama’s continues to delay his decision on Keystone XL, causing series consternation from all sides. Which is it?

Will Obama close the door on America’s closest ally or will he alienate environmental advocates he so recently delighted during both his inauguration and State of the Union speeches.

We’re not really that sure anymore.

This week, we created a ZEMA graph representing prompt month contract prices for WCS (Alberta) and WTI crude oil from July 2011 up to the present.

From March 2013 until November 2016, we also plotted forward curves for both.

What’s interesting is the green section – representing the spread between WTI and WCS – which maintains a large price difference going forward. Although Alberta oil prices continues to drop relative to WTI prices, the sustained spread up until 2016 reflects the fact that many traders may remain skeptical about the construction of pipelines any time soon.

With trends like this, it might be fair to say that tensions up north could be reaching boiling point in the not too distant further.

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