Even though Canadian pipeline operators are experiencing difficulties in having major projects approved by U.S. authorities, the links between Alberta's oil fields and refineries south of the border are getting better, a new analysis by Barclays Capital has suggested.
According to Michael Cohen, analyst at Barclays Capital, as logistics between the two countries are improving, the delays in key pipeline projects may not have a negative effect on the development of Canada's oil sands. Bitumen production from Canada will reduce import values, be blended with light supplies and will be transported more directly to U.S. refineries, he explained in a note to clients, quoted by the Financial Post.
Several connectivity projects are predicted to launch by mid-year, further facilitating access to the Gulf Coast and reducing costs, Barclays' analysis showed. These include the Flanagan pipeline, from Pontiac, Illinois, to Cushing, Oklahoma, and the Seaway pipeline, from Cushing to Freeport, Texas, both operated by Enbridge. Another project set to come online soon is the Pony Express, running from the Bakken Shale to Cushing, operated by Tal Grass Energy Partner LP.
Despite new pipeline capacity expected this year, Canada will also be ramping up rail on-loading capacity. These developments in logistics are set to close the gap between domestic and imported crude, leading to a narrowing of differentials between Western Canada Select and the U.S. crude benchmark, Cohen predicted.