Alberta pursuing 'corridors' to coasts for new access to crude markets: energy minister

The Alberta government is working on creating "economic corridors" to the Canadian and Alaskan coasts to further market access for its landlocked oil and natural gas resources and to circumvent regulatory hurdles blocking new pipelines, according to Pete Guthrie, the province's energy minister.

The corridors will have pre-approval for rail, utilities and crude oil and gas pipelines, Guthrie said in a Jan. 18 interview in Edmonton. While in early stages of discussions, the planned pathways are an "important piece we have on our platform" to provide additional egress for Alberta's oil and gas producers, he added.

Alberta's Department of Transportation has taken the lead on this initiative and consultations have already started with neighboring provinces British Columbia, Manitoba and Saskatchewan and with First Nations communities and stakeholders, he said.

"An internal committee has been formed and we are developing a strategy," Guthrie said. "No timeline has been set as yet for the building of the corridors, with the focus now being on creating a strategic plan."

Potentially, the corridors could be built from the Edmonton heartland to the port of Kitimat, British Columbia, for markets in Asia and to the port of Churchill, Manitoba, and even Alaska for markets in Europe, he said.

"The planned corridors could as an example be a 10 km-wide swathe where we have pre-approval to do work," Guthrie said. "If we can go out and do a bunch of the leg work, we can let producers/shippers know about their access points for investment."

A former vice president for markets with the Canadian Association of Petroleum Producers, industry veteran Greg Stringham said separately Jan. 19 while the corridors are a "great concept" delivering it will be a challenge. A corridor would include multiple pipelines for oil, gas and even electricity. Aligning the First Nations communities and working in tandem with other provincial and the federal government will be key factors, Stringham said.

Pipeline uncertainty

The construction of new crude pipelines and the expansion of existing export infrastructure has been a bone of contention between Alberta and the federal Liberal government of Prime Minister Justin Trudeau. It has passed laws since coming to power in 2015 making it challenging for pipelines to be built and for new investments in Alberta's oil sands and its conventional resources.

Two major proposed pipelines -- the 1.1 million b/d Energy East and the 550,000 b/d Northern Gateway -- were cancelled as they did not receive federal government approval. Also, in the US, the Biden Administration revoked the permit for the 830,000 b/d Keystone XL pipeline.

The last time a new pipeline from Alberta was built was in October 2021 when Enbridge started up its 760,000 b/d Line 3 replacement project to transport crude from Edmonton to refineries in the US Midwest.

Besides providing additional markets and narrowing the differentials between the Western Canadian Select blend and WTI, the corridors would also help in getting a better handle on the soaring cost of building new pipelines, Guthrie said.

"There are some things that make it difficult for investors and uncertainty is one of them, besides availability of labor and regulatory delays," he said. "We see these pipelines are facing major cost overruns and the economic corridors will likely be a solution to that part of the equation."

Trans Mountain Expansion almost complete

The Trans Mountain Expansion is the next pipeline due for startup, in late 2023, increasing throughput to 890,000 b/d from its existing 300,000 b/d. The expansion work on TMX is 80% complete.

"With the completion of TMX we stand to benefit from improved and stable WCS pricing and also complements our strong Gulf Coast pricing from our Eagle Ford operations and our light oil production in Western Canada," Brian Ector, vice president for capital markets with Baytex Energy, said in an email Jan. 18.

With continued strong demand for heavy oil barrels among US refiners, the TMX startup is expected to narrow the WCS/WTI differential into the $10-$15/b range towards the end of the year, more reflective of pipeline economicsfrom Alberta to the US Gulf Coast, Ector said.

WCS spot price discounts to Cushing WTI have widened in recent months. WCS at Hardisty has averaged at a $25.17/b discount to WTI so far in January, widening from a $12.95/b average in January 2022, Platts assessments show. Platts is a unit of S&P Global Commodity Insights.

WCS at Nederland, Texas has averaged at a $15.91/b discount to WTI so far in January, down from a $5.34/b discount in January 2022.