We forecast that Canadian liquids production was lower in May by 0.19 mb/d m/m, driven by lower in situ and mined production, but higher y/y by 0.20 mb/d due to lower upgrader maintenance. In situ production was lower by 95 thousand b/d m/m as reductions at Conoco Phillips’ Surmont (-77 thousand b/d m/m), Cenovus’ Christina Lake (-32 thousand b/d m/m), and Imperial’s Cold Lake facility (-20 thousand b/d m/m) were only partially offset by higher production from Suncor’s Firebag (+30 thousand b/d). Synthetic production fell by 18 thousand b/d m/m as spring maintenance continued, albeit at a significantly lower level than last year. Autumn maintenance is planned at the Mildred Lake and Horizon upgraders. AER inventory levels fell by 3.9 mb m/m despite arbs to the USGC narrowing to within $12 on average for May, which should have restricted rail movement. Pricing widened for June and July trade, which should have incentivised further draws, but August arbs have narrowed to less than $8.
The Albertan government has once again reduced the amount of production curtailment in the province, to just 0.15 mb/d for August after remaining at 0.18 mb/d for July. The further reduction comes not only as inventories have drawn but also as some producers have expressed interest in assuming government commitments for 4,400 rail cars on order. Rail movements are expected to pick up in H2 19 as the new railcars become available; however, differentials will need to incentivise the movements. The Hardisty-USGC differential has fluctuated over the past few months and now sits within $8, closing fully loaded rail arbs to the USGC.
While rail will help alleviate short-term bottlenecks, the country is still seeking additional pipeline capacity. Enbridge’s mainline apportionment continues, with July levels easing by only 2-3 ppts m/m. Enbridge has been working to add pipeline flows and announced the addition of 0.14 mb/d of capacity by early 2020, with 25 thousand b/d on Line 4 expected in Q3 19, 50 thousand b/d on Express by end-2019, and 60 thousand b/d on the Mainline system in early 2020.
Final data for April show total Canadian liquids production was up m/m by 70 thousand b/d at 5.39 mb/d (+0.51 mb/d y/y), in line with our forecast of a 33 thousand b/d m/m increase. The largest increase came from bitumen production, higher by 0.18 mb/d m/m and only partially offset by lower synthetic production, down by 0.10 mb/d m/m due to maintenance at Suncor’s Baseplant, CNRL’s Horizon and Scotford upgraders. NGL production was lower m/m by 9 thousand b/d; conventional production was essentially flat. Inventory levels were higher for April (AER: +2.5 mb; NEB: +1.5 mb), despite rail movements to the US increasing by 68 thousand b/d m/m to 0.24 mb/d and total US exports at 3.83 mb/d, up m/m by 0.12 mb/d.