Question

What role does transportation costs play for the oil industry in Western Canada?

Answer 1

ANSWER: Western Canada includes the nation's four westernmost provinces: Alberta, British Columbia, Saskatchewan and Manitoba. The provinces of Alberta, British Columbia and Saskatchewan share the sedimentary basin in Canada for natural gas production. The insufficient in­frastructure in transportation and pipeline bottlenecks has raised dra­matically the differential beyond the natural level in recent years. Canada's current market is stressed by an increasing demand for systems in pipeline to convey increasing oil and gas volumes to global markets, both westward to tidewater ports in British Columbia and U.S. and mid-western to southward U.S. transfer facilities and Gulf Coast ports of tidewater. Because the export pipelines in Canada are at capacity, the incremental oil barrel needs to be shipped by rail, and thus increases the transportation cost which further drives up pricing discounts. These steep oil price discounts are mainly due to the insufficient pipeline capacity, which has lowered dramatically the market price for Cana­dian crude oil and lead to the lost revenue for oil producers and the economy. Thus the transportation cost plays a leading role in Western Canada for the oil industry.