A Calgary-based energy market analyst says sending oil from Churchill provides “optionality” but the economic argument is less certain..Kevin Birn, Chief Analyst of Canadian Oil Markets and S&P Global Commodity Insights, sees some benefit to moving more oil on the Hudson Bay Railway and Port of Churchill. However, its potential depends on both market factors and improvement to the rail line..“There's a lot of complexity. That rail line is weight restricted. It has to be repaired; it has to be upgraded to allow significant movements. The port has the ability to move [oil] but how much volume are we talking about? So, certainly there's potential, but I don't see it being a large mover for Canada in terms of total volume,” Birn told the Western Standard in an interview..“The one thing any tidewater port can offer Canadian producers is optionality — so, diversification away from the US market. That optionality is valuable to Canadians should there be downstream disruptions or should there be midstream disruptions, but that optionality will come at a cost as well.”.The differential between Western Canada Select and New York-traded West Texas Intermediate has spread to more than $25 of late, up from its more typical $15 gap. As of November 5, WCS was U.S. $66.92, while WTI was U.S. $92.61. Even if oil left Hudson Bay today, that gap would remain..“And Canadian crude is priced down on the Gulf Coast, and continues to be priced down the Gulf coast subject to transportation. The widening of the differentials we've seen is due to downstream refinery disruptions, as well as widening of the heavy sour fuel oils globally as well, which is reducing the value of the heavy ends of the barrel,” Birn said..“The western Canadian price we expect to continue to be set…in the Gulf Coast]. That's unlikely to shift by access to Churchill.”.Last month’s letter from Alberta Premier Danielle Smith’s to premiers in Regina and Winnipeg touted Churchill’s potential despite the costs to infrastructure. .“Investors are increasingly looking for responsibly produced energy and agricultural products and are united on the need to limit the power and reach of despotic regimes, including Russia,” she wrote..Then again, the Canadian energy sector has been oppressed right here in Canada with bills C-69 and C-49. And, as Birn points out, Ottawa would have a say in what happens in Churchill..“Certainly the federal government has jurisdiction as it relates to the expansion of any marine terminal and that movement within the coastal waters as well,” Birn said..A change of government would bring a change in policy. In April, Pierre Poilievre promised to repeal bills C-69 and C-49 if he became prime minister, and create a system with clear rules and hard deadlines..“Canada’s considerable domestic resources…have not been able to get to market because projects like the Port of Churchill have been stymied by government gatekeepers,” said Poilievre in an April press release..“My government would work to pre-approve permits required to export oil from the port to markets around the word, giving investors the confidence they need to get it done. My government would unlock the potential of Canada’s Arctic port, and the Canadian paycheques it creates, and get our energy resources to the world.”.Poilievre said upgrades to the port could allow it to ship 100,000 more barrels of oil per day in the form of bitumen pucks, and a pipeline to Churchill would expand capacity by 200,000 barrels per day..Birn expects oil prices to rise over the long term. For now, he says, Canada already has enough pipeline capacity already to handle its production. Then again, more production would have happened if prospects for pipeline projects were better..“Certainly, [the lack of] pipelines have delayed and deferred investment. That has lowered our production outlook [from what]…it would have been otherwise. But the big things now we see are very high levels of pressure from the investment community to prioritize value over volume. And then also pressure to decarbonize as well.”
A Calgary-based energy market analyst says sending oil from Churchill provides “optionality” but the economic argument is less certain..Kevin Birn, Chief Analyst of Canadian Oil Markets and S&P Global Commodity Insights, sees some benefit to moving more oil on the Hudson Bay Railway and Port of Churchill. However, its potential depends on both market factors and improvement to the rail line..“There's a lot of complexity. That rail line is weight restricted. It has to be repaired; it has to be upgraded to allow significant movements. The port has the ability to move [oil] but how much volume are we talking about? So, certainly there's potential, but I don't see it being a large mover for Canada in terms of total volume,” Birn told the Western Standard in an interview..“The one thing any tidewater port can offer Canadian producers is optionality — so, diversification away from the US market. That optionality is valuable to Canadians should there be downstream disruptions or should there be midstream disruptions, but that optionality will come at a cost as well.”.The differential between Western Canada Select and New York-traded West Texas Intermediate has spread to more than $25 of late, up from its more typical $15 gap. As of November 5, WCS was U.S. $66.92, while WTI was U.S. $92.61. Even if oil left Hudson Bay today, that gap would remain..“And Canadian crude is priced down on the Gulf Coast, and continues to be priced down the Gulf coast subject to transportation. The widening of the differentials we've seen is due to downstream refinery disruptions, as well as widening of the heavy sour fuel oils globally as well, which is reducing the value of the heavy ends of the barrel,” Birn said..“The western Canadian price we expect to continue to be set…in the Gulf Coast]. That's unlikely to shift by access to Churchill.”.Last month’s letter from Alberta Premier Danielle Smith’s to premiers in Regina and Winnipeg touted Churchill’s potential despite the costs to infrastructure. .“Investors are increasingly looking for responsibly produced energy and agricultural products and are united on the need to limit the power and reach of despotic regimes, including Russia,” she wrote..Then again, the Canadian energy sector has been oppressed right here in Canada with bills C-69 and C-49. And, as Birn points out, Ottawa would have a say in what happens in Churchill..“Certainly the federal government has jurisdiction as it relates to the expansion of any marine terminal and that movement within the coastal waters as well,” Birn said..A change of government would bring a change in policy. In April, Pierre Poilievre promised to repeal bills C-69 and C-49 if he became prime minister, and create a system with clear rules and hard deadlines..“Canada’s considerable domestic resources…have not been able to get to market because projects like the Port of Churchill have been stymied by government gatekeepers,” said Poilievre in an April press release..“My government would work to pre-approve permits required to export oil from the port to markets around the word, giving investors the confidence they need to get it done. My government would unlock the potential of Canada’s Arctic port, and the Canadian paycheques it creates, and get our energy resources to the world.”.Poilievre said upgrades to the port could allow it to ship 100,000 more barrels of oil per day in the form of bitumen pucks, and a pipeline to Churchill would expand capacity by 200,000 barrels per day..Birn expects oil prices to rise over the long term. For now, he says, Canada already has enough pipeline capacity already to handle its production. Then again, more production would have happened if prospects for pipeline projects were better..“Certainly, [the lack of] pipelines have delayed and deferred investment. That has lowered our production outlook [from what]…it would have been otherwise. But the big things now we see are very high levels of pressure from the investment community to prioritize value over volume. And then also pressure to decarbonize as well.”
