CALGARY – Canadian heavy oil producers exported a record amount of crude in September, and analysts say exports of heavy barrels will continue to grow even if commodity prices continue to fall.
Data from the National Energy Board released Thursday showed Canadian heavy crude oil exports climbed by 70,000 barrels per day to just under 2.1-million bpd between August and September. Those heavy oil exports surpassed 2-million bpd for the first time in August and are expected to continue to increase despite the current drop in oil prices.
Following OPEC’s decision not to cut production on Thursday, North American and global oil prices slid to their lowest levels since 2010. West Texas Intermediate fell by US$4.64 to US$69.05 a barrel and Brent plummeted by US$5.17 to US$72.58/barrel.
The price for Western Canada Select, a blend of heavy Canadian heavy crude, sells at roughly US$15 less than the WTI price, and closed Thursday at US$55.94 per barrel. That price discount has narrowed from US$32 a barrel a year ago, in part because WTI and Brent prices have fallen faster than WCS.
ITG Investment Research chief energy economist Judith Dwarkin said the price discount has also narrowed because refineries in the American Midwest, including BP plc’s Whiting Refinery, have been processing more heavy Canadian oil. Since producing heavy oil in Canada is a long-term investment, analysts say heavy oil exports will continue to grow.
“Notwithstanding low prices in the near term, we don’t see too much reduction in the pace of growth of oil sands bitumen for the reason that the investments that would bear fruit in this sector are locked in,” Ms. Dwarkin said by telephone.
In a few years, she said, “if there’s no change in the operating environment in terms of prices or price expectations then we would expect to see the pace of growth come off quite a bit.”
The NEB’s data showed that light oil exports from Canada slipped in September — falling to 847,000 bpd from 917,000 bpd.
The swoon in commodity prices is expected to take a bite out of light oil, moreso than of heavy oil, production in Canada in the short to medium term.
David Howard, managing director of ITG Investment Research, said “the investment horizon, the decision-making time frame, for a light, tight oil player is to drill the next well in 30 days.”
He added that rigs are generally contracted on a yearly basis, but those contracts can be cancelled for a fee.
“The kind of prices we’re seeing now are certainly going to impact spending later in 2015,” said Gary Leach, president of the Explorers and Producers Association of Canada. “My view is that budgets are set and licenses are pretty well already in hand for the winter drilling season – it’s a pretty short season we have.”
Despite the drop in oil prices, Mr. Leach remained optimistic about the overall health of the energy sector.
“We have been dealing with some of the lowest prices in the world and the highest costs for some time, and I think the Canadian upstream sector is fairly resilient in those circumstances,” he said.
gmorgan@nationalpost.com
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