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TC Energy Corporation TSX:TRP Toronto Common Stock
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  1.05 1.87% 57.25 57.26 57.27 57.28 56.48 56.52 1,098,674 20:02:09

Canadian Crude Prices Hit by Keystone Pipeline Shutdown

05/11/2019 9:51pm

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By Vipal Monga 

The price of Western Canadian Select crude oil is reeling as Canadian oil producers struggle with the continuing shutdown of TC Energy Corp.'s Keystone pipeline.

Barrels of WCS were trading at $34.51 Monday afternoon, down from $38.20 on the previous Wednesday -- the day after Keystone pipeline spilled more than 9,000 barrels of oil in northeastern North Dakota. The spill, which the company said was enough to fill half of an Olympic-size swimming pool, forced the shutdown of a main artery taking Canadian oil from the province of Alberta to refiners in the U.S. Midwest.

Monday's price for Canadian crude represents a $22.05 discount to U.S. benchmark West Texas Intermediate prices, the most since December 2018, said Laura Huchzermeyer, a managing editor for the Americas Crude team at S&P Global Platts.

"This underscores how Canadian energy is held hostage to just a small number of pipelines," said Michael Tran, an energy analyst for RBC Capital Markets.

Closing the Keystone pipeline reduces the ability of producers to move 590,000 barrels a day out of Alberta. That has prompted executives, who have long complained about Canadian governments' inability to get new pipelines approved, to scramble to fill the gap.

Richard Kruger, chief executive of Exxon Mobil Corp.'s Canadian unit, Imperial Oil Ltd., said the Keystone pipeline is a big part of the company's takeaway options. "So when something like that happens in a system that's tight, it's all hands on deck for what do you do to keep barrels flowing," he said during a Nov. 1 conference call.

The company doesn't reveal how much oil it ships through Keystone, but Mr. Kruger said during the call that the province has room to add about 12 million barrels to inventories, meaning Alberta's producers could reach a limit if TC Energy doesn't get the pipeline flowing again by mid-November.

In 2017, TC Energy needed 12 days to fix Keystone, after the pipeline leaked more than 5,000 barrels of oil in South Dakota.

A TC Energy spokesman said there is no word yet on when Keystone will be operating again. The company said on its website Monday that 200 people are working around the clock to fix the leak and clean up the spill. The company expects to dig up and extract the damaged section of pipe by the end of this week.

Though the pipeline is shut from Alberta to Oklahoma and Illinois, it remains open on its southern leg from Oklahoma to the Gulf Coast.

The pullback in Canada's oil price is negating much of the effect of oil-production cuts imposed on the industry last year by Alberta's provincial government. In 2018, the lack of pipeline space caused the discount to reach a record difference of more than $51 a barrel last October, but it then narrowed to less than $7 by January of this year after the government of Alberta forced producers to cut output in a move to reduce oil inventory.

Companies have been exporting more oil by rail in recent months. Calgary-based Cenovus Energy Inc.'s chief executive, Alex Pourbaix, said last week that the company had moved an average of more than 80,000 barrels a day by rail to the U.S., up from an average of 36,000 in June.

The company wants to reach 100,000 barrels by rail by the end of the year. Canadian National Railway Co., said it transported 180,000 barrels a day in September. It has capacity to move about 300,000 a day.

Write to Vipal Monga at vipal.monga@wsj.com

 

(END) Dow Jones Newswires

November 05, 2019 16:36 ET (21:36 GMT)

Copyright (c) 2019 Dow Jones & Company, Inc.

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