Canada’s largest heavy oil and gas producer announced that it would slow output due to steep discounts caused by low transportation capacity out of Alberta, according to a new report by Reuters.
“Although oil is moving, the (price) differentials are behaving as if the oil can’t move,” Canada National Resources Ltd. President Tim McKay said. The total effect of the decision will be “quite minor” according to the company’s leadership.
The company is also delaying the completion of infrastructure investments that would increase production from its existing heavy oil wells.
“We look at the differentials all the time and our ability to start and stop our drilling program, based on what’s going on with the commodities,” McKay said, describing the thought process behind the delayed renovations. Heavy oil is more difficult and expensive to transport because it requires a substance to dilute the liquid to move through pipelines efficiently.
The widening gap between supply and demand for pipeline capacity linking Canada and the United States is causing higher fuel costs for distributors and consumers in North America, a recent report from the C.D. Howe Institute said.
Oil and gas producers in the north are struggling to stay competitive because of rising transportation costs as pipeline projects fail to materialize time and time again. Canada plans to create a new system for the approval of major energy projects.
“If Canadian governments allowed pipelines to be built expeditiously, the competitiveness of western Canadian oil producers would be greatly improved,” Benjamin Dachis of C.D. Howe said.
New projects in Canadian oil sands tighten competition further. The Fort Hills oil sands project in Alberta, Canada, achieved first oil this week, with production expected to ramp up over the coming months to 180,000 bpd, France’s Total—which holds 26 percent in the project—said on Monday.