New Refinery Means Canadian Natural Can Take Pipeline Woes in Stride

(Bloomberg) -- Canadian Natural Resources Ltd. is taking the delay to Enbridge Inc.’s Line 3 project and the potential cancellation of Alberta’s crude-by-rail plan in stride, saying that a refinery project and natural output declines should help prevent another crash in local oil prices.

CNRL, as the oil-sands producer is known, expects its North West Redwater refinery joint venture to start taking 80,000 barrels a day of heavy crude off of pipelines this year, executives said on a call. The Western Canadian Sedimentary Basin also has natural decline rates, and without any drilling activity by producers, that could take as much as 300,000 barrels a day off the market, they said.

With that in mind, Alberta still should be able to reduce its mandated production curtailments in the coming months and eliminate them entirely by the end of the year, CNRL President Tim McKay said in an interview. That could still be the case even as the startup of Line 3 is held back by a year, until late 2020, and if the United Conservative Party wins the Alberta election this year and cancels the province’s plans to invest C$3.7 billion ($2.7 billion) in crude by rail.

New Refinery Means Canadian Natural Can Take Pipeline Woes in Stride

It also helps that the gap between benchmark crude prices in Alberta and the U.S. is widening to a level that covers the cost of hauling the oil by train. The differential that shrank to less than $7 a barrel in January, last month reached $15 and is currently near $11.

“I don’t see anything looking ahead here that’s going to change that premise,” McKay said. “I still look at the fact that the differentials have come in and they’re at more normal levels.

To be sure, the start of heavy-crude processing at the refinery in Sturgeon, Alberta, has been delayed multiple times.

As for Alberta’s production curbs, which were introduced as a temporary measure to be gradually phased out before the end of the year, McKay sees everything going as planned.

“They have been reducing the curtailment volumes, so nothing has changed, and to me it seems to be on track and positive.”

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