Pipeline shortage to cost the economy $15.6 billion this year: report – by Geoffrey Morgan (Financial Post – February 21, 2018)


CALGARY – Lack of pipelines and massive discounts for Canadian heavy oil could cost the economy $15.6 billion this year, or three-fourths of a point from the country’s GDP, according to economists at Scotiabank.

“Reliance on the existing pipeline network and rail shipments to bring Canadian oil to market has a demonstrable impact on Canada’s well-being, with consequences that extend well beyond Alberta,” Scotiabank senior vice-president and chief economist Jean-Francois Perrault and commodity economist Rory Johnston wrote in a report released Tuesday.

The economists said the current roughly US$24 per barrel discount between Western Canada Select and West Texas Intermediate oil prices would erase $15.6 billion from the economy this year, or around 0.75 per cent of the country’s GDP.

They note, however, that as more and more oil moves out of Canada on railway cars to make up for the lack of pipeline capacity, the discount between WCS and WTI should shrink to an average of US$21.60 per barrel. This would reduce the cost to Canadian economy to roughly $10.8 billion this year, or 0.5 per cent of GDP, and $7 billion next year, or an estimated 0.3 per cent of GDP.

Scotiabank called the delay of new export pipelines and the large discounts that it has triggered, “a self-inflicted wound.” “The sooner governments move to allow additional pipeline capacity to be built, the better off Canada will be,” Scotiabank economists Perrault and Johnston wrote.

For the rest of this article: http://business.financialpost.com/commodities/energy/a-self-inflicted-wound-pipeline-delays-to-cost-canadian-economy-15-6b-in-2018-says-scotiabank