Smoke rises from railway cars that were carrying crude oil after derailing in downtown Lac-Mégantic, Que., Saturday, July 6, 2013. The Alberta oil industry is in deep trouble because of the huge price discount (by as much as $50 US per barrel) for bitumen (West Canadian Select) compared to the U.S. benchmark West Texas Intermediate oil price, which itself has plummeted in recent months. The main culprit, according to producers, is a supply glut caused by pipeline bottlenecks, due largely to government-imposed delays in new pipeline construction: notably Trans Mountain, and more recently Keystone XL. Curiously, companies did not seem to have incorporated these uncertainties into their production plans. Moreover, their argument turns conventional supply and demand on its head: increase oilsands supply in an oversupplied market in order to increase its price? The oil companies also blame high taxes, obstructionist legislation and overregulation for their woes, which is ironic in light of the federal government’s willingness to purchase Trans Mountain Pipeline and underwrite its expansion. To compensate for these bottlenecks and help reduce the price disadvantage, the industry is turning to rail. Oil-by-rail traffic has ballooned — by 65 per cent in the last year alone — now […]
