At the end of the day on December 3rd Western Canadian Select (WCS) futures, the reference price for heavy crude from the oil sands was trading at $27.95/barrel. WTI Crude (North American Crude benchmark), on the other hand, was trading at $52.95. WCS was trading at a relative discount of $25. This too after WCS was up by over 65% ($11.02) on the day because of Alberta Premier Notleys announcement. The spread/differential has continually grown to historic highs as global oil prices have increased over the past year but the price of WCS has rapidly declined from its high of $58.37 since May. In fact, in October WCS was trading at a $52/barrel discount compared to WTI.

At historic lows of $13.27 in mid-November, something needed to be done. For the first time since 1980, the province of Alberta will limit the production of oil. This cut of about 325,000 barrels a day along with a plan to acquire more rail capacity and Enbridge line 3 expected to open by the end of next year, WCS prices finally have some relief. Although WCS has historically always traded at a discount, why is the discount at such a high level now?

Reliance on the U.S.

For anyone that followed the NAFTA saga since President Trump was elected knows how reliant the Canadian economy is on the United States. For many years Canada has been working on diversifying our global trade and trade agreements like CETA and CPTPP will help with that a lot overall. However, without building more pipelines to the coasts, the Canadian Oil industry will remain strongly reliant on the U.S. Canada is the fourth largest producer and exporter of oil but 99% of our oil exports go to the U.S. This means that we are very reliant on the U.S. to buy our oil. Two of Canadian oil’s key U.S. customers have been offline and underground maintenance for some weeks. With both BP Plc’s Whiting refinery in Indiana and Marathon Petroleum Corp.’s Detroit refinery offline, a large amount of inventory has built up with nowhere else to be shipped.

Shipping Constraints

Roughly 35 million barrels of oil (double the normal amount) were sitting in storage and before these cuts, an additional 190,000 barrels were being added every day to storage because they were unable to be shipped out. Basic economics teaches that an excess of supply means prices will have to drop to compensate. Even if these lower prices increase demand, the oil still has no way of being shipped. Most pipelines are running near maximum and while rail capacity is increasing fast, it cannot keep up.

Need for Pipelines

Many activists say that if the Trans Mountain pipeline and other pipelines are allowed to be built, it will increase emissions because more oil will be produced from the oil sands. There is no denying that the emissions from the Canadian Oil Sands contribute significantly to Canadian emissions. There is also no denying that moving oil that pipeline spills can damage the environment around them. However, looking at the facts the lack of pipelines will not reduce the amount of oil being produced but it will just be transported in different ways, primarily by rail. In 2017, the oil industry shipped approximately 140,000 barrels by rail per day. By the end of this year, the amount of oil being shipped by rail could hit 300,000 barrels per day.

Greg Stringham an energy consultant said,

With further delays in pipelines, that’s increased the amount of oil that’s moving by rail but also increased the interest in that as well as companies look to that option.

Safest Method of Transportation

Experts say not only are pipelines the safest method for moving crude but also the most efficient and least expensive way to ship oil. In 2015 the Fraser Institute conducted a study analyzing the methods of transporting oil between 2003 and 2013. Although both rail and pipelines are considered safe methods of transportation, pipelines are by far the safer method. The study highlights that an incident is 4.5 times more likely when shipping by rail. Not only that but 99% of pipeline incidents did not damage the environment. If the oil is going to be produced and shipped regardless, should we not be using the safest method of transportation while reducing our reliance on the U.S. by building more pipelines?

Sources: Oil Price; CBC; Financial Post; Financial Post; Financial Post; BNN Bloomberg; Keep Canada Working; CTV News; CBC; Natural Resources Canada; Fraser Institute;

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Did BC Hydro do their job to the fullest or did they mess up big time? If I ignore the first few hours where they were absolutely terrible I would give them a 9/10, pretty impressive. However the fact still remains, in the first few hours where thousands started losing power, the BC Hydro website crashed and people were left without any information at all. From roughly noon, when their website went down, to roughly 5pm, when their Twitter account became extremely active, they were not doing so well on the customer service front. At some point BC Hydro realized that people were getting angry and that their website wasn’t coming back online anytime soon. They became very active with their Twitter account and started providing as detailed information as they possibly could. Now this might not be very reassuring for someone that was sitting without power but it was at least reassuring to know that BC Hydro was doing everything they could.

At 10pm when they posted a PDF with estimates of when power would be back, people at least had a timeline to look forward to. The only problem was that they couldn’t live up to many of these estimates and have had to push them back multiple times. Their twitter account since yesterday has remained extremely active since 5pm, providing every update possible. They have in fact even setup a temporary page on their website to keep customers updated.

We estimate that 530,000 customers lost power at some point during Saturday’s windstorm – one of the biggest single-day storm events we’ve ever experienced. We’ve restored power to more than 350,000 customers in 24 hours.

We have more than 400 people working on restoring power including over 250 power line workers. We have brought in crews from all over B.C. to help including crews from Prince George, Kamloops, Smithers, Terrace, Vernon, and Vancouver Island.

That is what their website currently says along with providing the latest PDF file of estimates of repairs. People that are sitting without power still might not care about all this and just want their power back but by keeping everyone as informed as possible BC Hydro has done a great job avoiding a PR disaster. Their will still be people that complain but there is no way to avoid those people. In fact many people are complimenting them for their updates and thanking the hard working crews.

Update: August 30th 11:15pm, at the latest count according to their Twitter account, 90,000 customers remained without power.

Update 2: August 31st 9:00pm, 24,000 customers still without power. These are the areas that suffered the most damage. Just under 50% of the customers are from Surrey. The BC Hydro website is now fully back online.

Update 3: September 2nd 4:35am, “We estimate that 710,000 – nearly 50% of our 1.4 million customers on Vancouver Island and the Lower Mainland – lost power due to Saturday’s windstorm. The storm is believed to be the single largest outage event in BC Hydro’s history.” Power has been restored to all but 100 people.

Source: BC Hydro; BC Hydro

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