The EIA (Energy Information Administration) reported this week that U.S. domestic oil production had again risen last week, adding another 15 thousand barrels a day in output to a record 10.5 million barrels a day and led by the ever-increasing levels of production from shale plays, especially in the Texas Permian Basin. Further north in Canada, the coming-on-stream of several new heavy oil projects in Alberta, including Christina Lake and Kearl, are also seeing pipelines and rail cars increasing volumes delivered. A veritable boom for the continent’s producers that’s coinciding with a surge in oil prices.
But good news comes at a price. Just as output outpaces records that have stood for generations, the surge in light-to-heavy oil is confronting a growing problem that won’t be solved overnight: takeaway capacity.
Pipelines and associated storage terminals are by far and away the safest and most efficient way to move crude, allowing oil producers to continue supplying hungry markets within North America and to tidewaters, giving a window unto a world where demand isn’t expected to taper for decades. The sheer success of producers bringing ever-increasing barrels onto the market has strained the existing petroleum delivery networks which are beginning to raise concerns about the reliable adequacy of U.S. shale oil supplies and contributed to Canadian’s heavy oil dropping to less than half WTI’s value this past February. And while rail deliveries have once again begun to rise, it is clear that oil by rail is also reaching maximum capacity with other traditional commodities like agricultural products struggling to prevent being bumped by rail carriers prioritizing more lucrative crude deliveries.
Though pipelines are by far the best way to move petroleum products, they are being met by fierce, well-funded environmental and native organizations, whose main purpose is to keep fossil fuels in the ground and use every maneuver possible to prevent pipelines from being built. This is particularly true where environmental obstruction has been successful in thwarting the Energy East and Northern Gateway pipeline projects that would have delivered Canada’s clean heavy oil to Atlantic and Pacific tidewaters, employing up-to-date, advanced technologies in the construction of the world’s safest oil conduits. The currently approved Kinder Morgan Pipeline is a case in point.
Despite approval after years rigorous review which focussed on safety and spill mitigation, the doubling of the existing Trans Mountain pipeline that would carry nearly 600,000 barrels of crude from Edmonton to Vancouver for awaiting markets in Japan, China, and California, is being stalled in the courts by a new provincial labor/green coalition government in British Columbia.
As for rail and pipeline opportunities in the Permian Basin, infrastructure limitations, rather than politics, is beginning to limit the remarkable advances in output. While more oil can be produced, getting it to market is going to be the growing concern for the next few years.