WCS and the Keystone Stops
Keystone leak once again puts the spotlight on Canadian egress challenges; comparatively muted hit to headline differentials highlights both increased resilience and recent quality-related issues.
I had the opportunity to speak about the Keystone pipeline outage and some of the Canadian crude pricing details discussed in this report with BNN Bloomberg yesterday morning—check out that full in-studio interview here.
(Note: at the time of the BNN interview, we didn’t yet have data that has since revealed further implied transportation weakening in Canadian crude prices, described below—though impacts to the headline discount remain relatively muted).
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Last week, TC Energy reported (yet another) leak on the Keystone pipeline system, this time in Kansas, and that the operator had closed the pipeline for repairs.
Previous Keystone service outages have trapped crude on the Canadian end of the pipe and rapidly widened differentials borne by barrels of Canadian crude—but this episode hasn’t yet resulted in as noticeable a hit to Canadian crude value.
This outage has, thus far, been relatively less disruptive in terms of both the physical pressure and financial impact on the Canadian crude differentials given (1) pre-existing quality-related drag on WCS prices that softened the shock to the headline differential (i.e., quality has eased while transportation has worsened), (2) ample spare Albertan inventory capacity, (3) the location of the leak, south of where the pipeline splits.
Markets received relief following yesterday evening’s announcement that TC Energy had restarted the unaffected segments of the Keystone system and crude had resumed flowing, albeit at less than half the pre-leak rate.
The Keystone pipeline, one of the primary arteries shuttling Canadian barrels from Alberta to US refiners, sprung a fairly substantial leak in Kansas last week and the system was shut down by operator TC Energy (formerly TransCanada). This is far from the first time—most recently in 2017 and 2019—and, typically, these outages back up huge amounts of crude into Canadian storage tanks and put tremendous pressure on the discount borne by Canadian barrels. But this time, we’re a week into the outage and there hasn’t yet been much of a noticeable effect on already-depressed Canadian crude values.
So, let’s review what we know so far to understand why a pipeline outage should hurt Canadian crude pricing in the first place and how the already-wide discounts experienced this year have disguised the effects of this latest Keystone outage (and are actually caused by entirely non-pipe-related market factors).