Pipeline constraints to cost economy $10.7 billion in 2018: Scotiabank

A lack of oil pipeline space, and the resulting discount to Canadian crude, is costing the economy roughly $15.6 billion a year or about 0.75 per cent of GDP, according to Scotiabank.

However, the bank said the steep discount is expected to ease this year as more rail capacity becomes available to ship oil, bringing the expected cost to roughly $10.7 billion or 0.5 per cent of GDP for 2018.

Scotiabank said the estimates show the delay of new pipeline approvals, which include Kinder Morgan’s Trans Mountain expansion, Enbridge’s Line 3 replacement, and TransCanada’s Keystone XL, have imposed clear, demonstrable and substantial economic costs on the Canadian economy.

The bank said the squeeze in pipeline capacity has been expected for some time, but the leak and temporary shutdown on TransCanada’s Keystone pipeline last November sped up the problem.

The bank said the discount on Western Canadian oil production since the spill has hovered around US$24 a barrel, much higher than the US$13 spread for the past two years, and that it expects it to average US$21.6 a barrel for 2018.

Western Canadian production is discounted somewhat both by quality and transportation costs, but has spiked several times in the past decade as pipeline space runs tight.

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