We forecast that Canadian liquids production was higher by 35 thousand b/d m/m and by 0.17 mb/d y/y in July at 5.37 mb/d. Synthetic production was up m/m by 0.10 mb/d at 1.25 mb/d as upgraders returned from maintenance. Production was also supported by higher mined volumes, up by 66 thousand b/d m/m. In situ production was roughly flat at 1.53 mb/d. We expect conventional production was lower m/m, by 50 thousand b/d, as the Hibernia offshore platform was shut from 17 July to 10 August and again on 17 August after two oil spills from the facility, one a discharge from a storage cell and the other related to a power outage.
Historical data indicate that inventories fell for the third straight month in July, down by more than 10 mb since April. Higher crude-by-rail exports have helped lower stocks. The average Hardisty-USGC differential over April-July trade was a $13.80 per barrel discount to CMA WTI, allowing crude-by-rail exports to rise by 0.16 mb/d since the low in February to 0.29 mb/d. Since July, Hardisty-USGC differentials have averaged just $9.49, making rail economics unattractive again. However, Alberta Premier Jason Kenney may soon allow oil producers to exceed their provincially imposed output caps if that output is shipped by rail, an exemption that may keep crude-by-rail volumes high.
With the WCS spread between Hardisty and the USGC narrowing and potentially threatening outflows, TransCanada reduced its international joint tariff on its Keystone pipeline, even after a successful open season was conducted for a 50 thousand b/d expansion. The new tariffs from Hardisty to the USGC are now just $7.99 per barrel for heavy crudes and $7.35 per barrel for light crudes, lower by $1.01 and $0.93, respectively. This should help ensure that pipelines remain full even at these very tight differentials.
Several companies have expressed opposition to Enbridge’s attempt to switch its Mainline system to a contract carry line, from a common carrier system, a change that could make it difficult for smaller companies to ensure line space on the largest outlet from Canada into the more-competitive USGC market. The change would not take effect until mid-2021.
Final data for June show that total Canadian liquids production was higher m/m by 0.15 mb/d to 5.33 mb/d (+0.35 mb/d y/y), roughly in line with our forecast of a 0.17 mb/d increase m/m. The difference was largely due to lower-than-expected NGL production, which dropped m/m by 24 thousand b/d. Excluding NGLs, production was higher across the board, driven by synthetic production, which was up by 0.10 mb/d m/m as upgraders began to return from maintenance.