What’s Next for the Canadian Oil Sands? Can a Successful Keystone XL Flip the Script on the Permian?

November 20, 2017

Over the past decade, the Western Canada Oil Sands have grown from 1.1 thousand barrels per day (M bbl/d) to 2.4M bbl/d, which is straining the pipeline capacity exiting the basin. This has had the effect of widening differentials between Western Canada and West Texas Intermediate pricing points. A major setback for Western Canada producers was the delay and denial of the presidential permit for the Keystone XL pipeline. However, in spite of that obstacle, Marketlink (the southern portion of the pipeline) was still constructed, increasing the takeaway capacity from Cushing to the US Gulf Coast.

Marketlink has since provided increased access to Gulf refiners and export markets for Permian producers utilizing Centurion and Basin pipelines to Cushing. From 2017 to 2025, Solomon expects Permian Oil production to grow 1.3 million barrels per day (MM bbl/d) to reach 3.0MM bbl/d. Capacity additions are required to achieve forecasted production, with the EPIC pipeline proposed for 2019 providing incremental egress for post-2022 growth.

The Nebraska Public Service Commission recently found that the Keystone XL project is in the public interest of Nebraskans, which will have a cascading effect on North American and international oil markets. The highly competitive and prolific Western Canadian Oil Sands with low sustaining CapEx will displace very price-sensitive Permian oil from the regional Gulf markets. Solomon believes that a compounding effect of lower Latin American supply of heavier crudes in conjunction with the Gulf refinery made-to-measure diet for Canadian heavy will be to force Permian crude to seek Waterborne markets, making the addition of the EPIC project crucial to maintaining Permian growth.