The Kearl oil sands plant, located approximately 75 kilometres northeast of Fort McMurray.HANDOUT
Early this year all looked bleak in the Canadian oil market, with projections of deep discounts for the crude that prompted corporate spending cuts and a tough Alberta provincial budget.
It didn't work out that way. The discount on heavy oil versus West Texas Intermediate, the North American benchmark, has been much narrower than expected and one of the reasons was spelled out on Thursday at Imperial Oil Ltd.'s investor meeting in New York.
Imperial vice-president Glenn Scott said the company's new Kearl oil sands project is still producing 40,000 barrels a day, or 36 per cent of its 110,000 barrel a day capacity. Full output is not expected until later this year, Mr. Scott said.
The $12.9-billion Northern Alberta bitumen project has faced delays, and, probably, misunderstanding in some parts of the market about how long it would take to run full-out after start-up. The project has three separate production trains and the current volume is pumped from just one of them.
The company initially targeted a start-up of late 2012, but for various reasons, including frigid Fort McMurray, Alta., weather, it started commercial production in late April.
That means crude, which the market had been fretting about clogging an already tight export pipeline network, has shown up late and in initially smaller volumes.
Western Canada Select heavy blend for July delivery traded on Thursday for $11 (U.S.) a barrel under WTI, compared with a discount of more than $40 during the darkest days of January, according to Net Energy Inc., which runs an electronic exchange for Canadian oil.
"There was always this view that there would be a little bit more supply in the market than has actually transpired over the last, say, three or four months," said Martin King, FirstEnergy Capital Corp.'s commodities analyst. Kearl is the big difference, he said.
Apportionment, or rationing of space on pipeline systems due to overbooking – a factor than can have a major impact on Canadian crude prices – has been "muted" in recent months, according to a Calgary-based crude trader. Some of that is likely also due to increasing volumes of oil moving out of Alberta by rail.
In Thursday's presentation, Imperial pointed out that it will have no problem finding buyers for all of the crude from the first phase of Kearl. In fact, it can keep it in the family.
Imperial and its 69.6 per cent owner, Exxon Mobil Corp., run eight refineries in Montana, Illinois, Ontario, Louisiana and elsewhere with equipment that has more than enough total capacity to process the bitumen.
Jeffrey Jones is a business reporter in Calgary.
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