Access to Asian markets is key, says economist

A ballooning spread between Canadian crude and its U.S. counterpart during the first quarter emphasized the need to diversify export markets to Asia, said Scotiabank economist Patricia Mohr.

The price differential between Western Canada Select blend and West Texas Intermediate hit a high of $32 US per barrel in April, and since has narrowed to $19.70 US per barrel, Mohr noted.

But over-reliance on one key market — the United States — leaves Canadian producers open to continued volatility, she said Thursday.

“Overall, U.S. oil demand has been declining for two years, so we’re not going to be sending crude to what I would call a growth market,” she said.

The oil and gas sector led a 2.3 per cent slide in Scotiabank’s commodity price index for April, the fifth consecutive decline, largely on pipeline constraints and refinery turnarounds in the U.S. Midwest that created a glut of Canadian crude.

Differentials, which generally average $17-$18 US, are expected to narrow further, to $13 US in June as pipeline capacity opens.

Mohr argued the price challenge for Canadian producers will continue even as proposals to ship oil east to Montreal and the U.S. eastern seaboard are developed, and Enbridge Inc.’s Seaway pipeline, the Transcanada Corp. Keystone projects and other proposals go forward.

“We need to expand our export pipeline capability and/or use rail cars to get it to the (British Columbia) coast so that we can tap the much stronger and faster growing markets of China, but also Japan.”

Canada could supply all of Japan’s need for oil as the Asian Pacific nation shifts away from nuclear power, but needs the vehicles for delivery, she said.

Currently, Kinder Morgan’s 100,000 barrel per day Trans Mountain line is the single oil pipeline flowing western Canadian crude to the coast of British Columbia. Proposals to expand the pipeline’s capacity to 450,000 bpd faces almost as much opposition as Enbridge’s contentious Northern Gateway pipeline.

First Nations and environmental groups have vowed to stop Enbridge in its tracks over concerns about oil spills in land and waterways along the Edmonton-to-kitimat, B.C. route. Groups also oppose increased tanker traffic in the region.