Pipeline builders struggling to keep up with producers – by Shawn McCarthy (Globe and Mail – August 2, 2013)

The Globe and Mail is Canada’s national newspaper with the second largest broadsheet circulation in the country. It has enormous influence on Canada’s political and business elite.

OTTAWA — As pipeline companies and railways race to add capacity for moving oil and natural gas around North America, two concepts are key: “plumbing” and “market options.”

Until about eight years ago, the North American industry faced a predictable, undramatic pathway, with steady declines in conventional oil and gas production and a measured growth in the oil sands that would require only incremental increases in pipeline capacity. But in a few short years, that picture changed dramatically, as drilling advances resulted in booming gas and tight oil production and triple-digit prices fuelled increasingly by ambitious expansion plans in the oil sands.

But the plumbers have struggled to keep up. Until recently, there was a blockage at Cushing, Okla., that resulted in deep discounts for North American crude compared to international sources. While new pipelines and rail capacity have cleared that logjam, producers fear others will develop if new pipelines cannot be approved and built quickly enough.

The support for TransCanada Corp.’s Energy East proposal shows how desperate producers and refiners are to expand their market choices – for sellers to find potential buyers and for the customers to have as many sources of supply as possible. It comes down to basic economics: the more competition in the marketplace, the less pricing power one side has over the other.

Faced with projections for staggering increases in crude production in North America, pipeline companies have responded with ambitious plans to connect markets with new oil and gas reserves that are currently not on the grid. In Canada alone, energy companies are proposing to add nearly four million barrels per day of pipeline capacity to markets to the east, west and south. That would support a projected increase in Canadian production to six million in 2025, up from 3.2 million barrels per day last year. In addition, the projected increase has supply growing by some 1.3 million barrels per day in the northern U.S.

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