Market Snapshot: Canada’s oil pipeline capacity in 2024

Release date: 2024-05-08

Crude oil production has been growing in western Canada, with Alberta hitting record-high production of 4.53 million barrels per day (MMb/d) in December 2023. The Trans Mountain Expanded System (Expanded System), once fully in-service, will add 590 thousand barrels per day (Mb/d) of new capacity and increase total western Canadian crude oil export pipeline capacity by 13%, helping to relieve capacity constraints on export pipelines.

Major oil export pipelines from western Canada – Trans Mountain (existing system), Keystone, and the Enbridge Mainline – are running at, or near, 100% utilization (Figure 1). High utilization indicates demand to use pipelines is also very high, and that spare capacity on export pipelines has become limited (Figure 1)^Footnote 1.

Figure 1: Crude oil volumes transported from western Canada relative to available pipeline capacity from 2018 to 2023

With the recent high utilization of oil pipeline capacity, crude-by-rail exports have increased in the past six months by 53%. Also, more oil has been placed into storage in western Canada in recent months. Some of this oil will be used to initially fill the line (known as line fill^Definition*) for new capacity of the Expanded System, while other oil added to storage is likely waiting for capacity constraints to ease once the Expanded System comes online.

High WCS differential decreases profit per barrel for western Canadian producers

The recent growth in oil production and high utilization of oil pipeline capacity has widened the difference, also known as a price differential, between Western Canadian Select^Definition* (WCS) and West Texas Intermediate^Definition* (WTI). WCS is typically discounted relative to United States produced WTI because WCS is a heavier crude oil that costs more to refine than WTI light oil, and because of the cost to ship WCS from western Canada to Cushing, Oklahoma, where WTI is commonly bought and sold. When pipeline capacity becomes constrained, oil that cannot be exported by a pipeline is often exported by rail, which generally requires a wider differential to justify the higher cost of rail transportation.

In 2023, WCS was valued at an average of US$17.90 per barrel less than WTI. Early in 2024, that discount had widened to about US$18.50 per barrel (Figure 2). A wider differential generally reduces the netbacks^Definition* or profitability of western Canadian crude oil producers, but also means domestic refineries can acquire lower cost crude oil. The discount on WCS has been reduced in recent months^Footnote 2 as the Expanded System's in-service date nears. In general, the additional capacity is expected to increase the value of WCS and other Canadian crude oils relative to WTI.

Figure 2: Western Canada crude oil production & storage inventory levels relative to the WTI-WCS differential

Date modified:

2024-05-17