Despite the startup of the Trans Mountain pipeline last fall, Alberta’s oil patch is already getting too big for its boots — or more correctly, its pipes.
That’s the conclusion of a new report by the McDonald-Laurier Institute that concludes Western Canadian oil production will surpass ‘egress’ capacity — a fancy word for pipeline capacity — within two years.
In other words, Alberta will soon find itself where it was in 2015 when Justin Trudeau was elected prime minister: stuck behind pipe.
“At the current rates of Western Canadian production growth, Canada is set to again overrun egress capacity… over the next year or two at most,” it reads.
For years, limited pipeline capacity has been a persistent headache for Canadian oil producers, forcing them to rely on costly rail transport or sell crude at deep discounts. The recent TMX startup has temporarily eased those bottlenecks, allowing more oil to flow to market without the steep price penalties seen in the past.
That’s because the price of Western Canadian Select (WCS) crude is surging relative to US West Texas Intermediate (WTI). On Monday it was less than USD$10 per barrel — a rare and welcome boost for an industry that has often struggled with steep pricing differentials, not to mention the threat of tariffs.
Without TMX, Canada’s oil sector would likely be grappling with yet another crisis, potentially forcing the Alberta government to impose production curtailments as it did under former premier Rachel Notley.
That’s because the price of Western Canadian Select (WCS) crude is surging relative to US West Texas Intermediate (WTI). On Monday it was less than USD$10 per barrel — a rare and welcome boost for an industry that has often struggled with steep pricing differentials, not to mention the threat of tariffs.
Without TMX, Canada’s oil sector would likely be grappling with yet another crisis, potentially forcing the Alberta government to impose production curtailments as it did under former premier Rachel Notley.
And that doesn’t take into account present Premier Danielle Smith’s ambitions to double production by the end of the next decade.
But McDonald-Laurier notes the present relief won’t last forever — current pipes will likely be maxed out within the next year or two, putting renewed pressure on prices unless additional projects move forward.
The situation serves to only emphasize the continued challenges associated with current pipeline infrastructure, McDonald Laurier said.
“It would be prudent for Canadian politicians to begin shifting their current concerns towards the structural, and entirely predictable, threat of renewed egress insufficiently coming down the pipe.”
In other words, it’s Deja vu — or 2015, at least — all over again, politically speaking.
As Canada heads into a pivotal election, the country’s oil sector is experiencing an unexpected windfall.
Meanwhile, the Yanks keep buying all the Alberta heavy barrels they can stuff into the largest refining hub on the planet — despite the threat of widespread tariffs on Canadian energy exports.
In fact, narrowing differentials are both a flashing market signal for more oil, but also a bet that Trump’s tariffs are going to have a negligible effect, if any, on surging US demand for Canadian heavies.
The alternatives are Venezuela and Russia, which frankly, are both toxic. The impact is clear: Canadian heavy crude is being welcomed by US Gulf Coast refiners who rely on it to replace lost supply from sanctioned nations.
While political volatility in Washington means there’s always a risk of sudden policy shifts depending on factors such as the time of day and the moodiness of its (unnamed) Commander-in-Chief, the worst-case scenario for Canadian crude now seems increasingly unlikely.
Meanwhile, Canada’s political parties are taking sharply different stances on energy infrastructure and resource development.
Although the governing Liberals have reluctantly championed the TMX expansion and are struggling to figure out how or why to unload it to the private sector, they have also implemented punitive policies such as emissions caps that could stifle further investment and undermine the value of its $35-billion asset.
On the other hand, the opposition Conservatives are advocating for aggressive expansion of pipelines, arguing that Canada must secure long-term market access to sustain not only the oil industry, but the entire Canadian economy in the face of Trump’s tariff threats.
Without additional pipe, the current pricing advantage could be short-lived, with constraints once again widening the WCS discount and putting Canadian producers at a disadvantage.
The New Democratic Party (NDP) and the Green Party, meanwhile, continue to push for a transition away from fossil fuels, arguing that Canada should be investing in renewables rather than expanding its pipeline network.
Yet the current pricing boom underscores a simple truth: when Canada has sufficient pipeline capacity, its oil industry thrives. Without it, Canadian crude faces steep discounts, lost revenue, and economic uncertainty.
The question for voters in the upcoming election is whether Canada’s leaders will take proactive steps to ensure long-term market access — or whether political gridlock will once again leave the industry fighting for space to move its product.
“While Canadian crude markets are as optimistic as they’ve been in months regarding US tariffs, the industry is still far from safe,” the report concludes. “Given the volatility of policy coming out of the White House, there is still a chance that this near-erasure of tariff risk from Canadian crude pricing may have come too far, too fast.”