Canadian Oil Producers Bet On New Pipeline Route To Gulf Coast

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Canadian Oil Producers Bet On New Pipeline Route To Gulf Coast

Wed, 11/03/2021 - 13:31
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Oil pump on background of the flag of Canada (© Shutterstock/Anton Watman)
Oil pump on background of the flag of Canada (© Shutterstock/Anton Watman)

Canadian oil producers are set to enjoy higher prices on the crude they sell to the U.S. refiners as a strategic south-to-north pipeline nears reversal. The event could raise prospects of the oil industry domestically.

According to energy markets consultancy RBN Energy, Marathon Pipeline LLC (Based in Ohio) filed tariffs for transportation of crude oil on the Capline Pipeline running from Patoka, Ill, all the way to St. James, Louisiana effective from October 25, 2021.

Capline is the largest pipeline running from south to north, conveying 1.2 million barrels of oil each day. However, since 2017, the pipeline’s owner, Marathon Pipeline, has been working on the plan to reverse the flow, allowing light and heavy oils to flow from U.S.’s storage hub in the Midwest to the Gulf Coast’s major refineries.

Randy Ollenberger, BMO Capital Markets analyst, also confirmed “they’re doing line fill right now,” adding he expected a shrink on the Western Canada Select in relation to the oil prices to USD 10 per barrel. West Canada Select traded 1.67% up on Thursday, to US$67.08, implying a US$15.50, relative to WTI US$82.58 per barrel.

“We don’t know who has contracts on the Capline, but we do think that everybody benefits in the sense that the spread comes in. You don’t have to be physically shipping on the Capline to benefit,” said Ollenberger, adding he’s expecting to see a significant impact of the pipeline in the bottomlines of the producers in the second quarter next year (2022).

Meanwhile, oil producers are anticipating the project would give them a better return per barrel.

Over the years, Canadian oil producer sold their crude oil to most of the U.S. refiners in the Midwest, leading to the proposed T.C. Energy Corp-owned Keystone XL pipeline to take 830,000 barrels per day directly to the world largest concentration of oil refineries at the U.S. Gulf Coast, thereby reducing dependence.

Currently, the Keystone XL pipeline is not functional following the cancellation order by the U.S. authorities.

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