Skip to main content

Enbridge Inc. is offering a disused length of pipeline to store crude for eight months.

Chris Helgren/Reuters

Just a couple weeks ago, energy executives were wondering whether Canadians might consider renting out their bathtubs for crude oil storage. They were only half joking.

As COVID-19 prompted governments to impose tight restrictions on movement, cars and planes were parked and gasoline consumption in North America plummeted by more than half.

The industry found itself in race to the bottom – cutting production by enough to deal with the major drop in refinery demand for oil and an approaching limit on storage capacity. Pictures of flotillas of tankers off California, unable to unload their cargo, were emblematic of the predicament.

Story continues below advertisement

In Canada, output has now fallen by as much as one million barrels a day – about a fifth of prepandemic volume. In the United States, as much as 1.2 million barrels a day are off line, according to RBC Capital Markets. With economies slowly stirring back to life and some innovative solutions emerging for storing crude oil, it’s looking as though the industry may narrowly avoid bumping up against the physical limits of storage.

Canadian Natural Resources Ltd., one of the country’s biggest oil producers, says it has cut conventional oil and heavy crude output by 74,000 barrels a day, and it has rescheduled upkeep at major oil sands projects for this summer that will reduce output by a further 180,000 barrels a day. This, rather than selling the barrels into depressed markets.

CNRL’s cuts are in addition to scads of other companies that have turned down the taps, including Suncor Energy Inc., Husky Energy Inc. and Cenovus Energy Inc.

CNRL president Tim McKay said the energy world looked dark in April, when oil futures sank below zero, partly on worries about too much oil and not enough room to store it. But the industry has responded to the market signal – the collapse in prices – with the necessary production cuts, he said.

“Ourselves and many companies felt that the prices were going to be very low for the next couple of months, and as such we’re reacting to that by doing maintenance and slowing down production,” he said in an interview after the company reported first-quarter results. It announced deeper spending cuts and a net loss of $1.3-billion. “So absolutely, when you see that pricing go low the supply reacts very quickly.”

The latest numbers from Genscape, which tracks inventory data, show that storage volumes had not exceeded 67 per cent of capacity in Western Canada by April 24 – though analysts suggested the real crunch would occur this month.

U.S. stats don’t line up with Canadian ones from a timing standpoint, but the buildup in crude stocks in the United States has been below expectations. On Wednesday, the U.S. Energy Information Administration reported stockpiles rose 4.6 million barrels for the week ended May 1, which lagged estimates. Yes, facilities keep getting fuller, but it was the second straight week of lower-than-expected injections.

Story continues below advertisement

In Canada, capacity looks to be increasing beyond the currently estimated 40 million to 45 million barrels.

Enbridge Inc. is offering a disused length of pipeline to store crude for eight months. Line 3, which has been replaced with new steel, runs between Edmonton and Gretna, Man. The section of old pipe between Regina and Cromer, Man., can hold up to 900,000 barrels, which is equal to four standard-size tanks. The company said it is “optimizing” some of its other facilities as well, adding another 1.2 million barrels of space.

Enbridge could see shipments on its Canada-to-U.S. pipeline system drop by up to 600,000 barrels a day as producers cut production, chief executive Al Monaco said after the company reported a first-quarter net loss of $1.4-billion.

Pipeline storage is not the only DIY fix in the industry. U.S. oil producer Hess Corp. said on Thursday it had chartered three supertankers to hold two million barrels each of North Dakota oil three months this summer, to be sold at a higher price later in an increasingly popular adoption of floating storage.

Of course, the only long-term solution is economic recovery, the timing of which is very much a wild card. Even with increasing business activity, oil storage won’t start to dissipate until gasoline and jet fuel inventories drain and refineries get back to more normal production rates. This could take months.

Still, the industry has proved its ability to adapt when forced to do so.

Story continues below advertisement

Your time is valuable. Have the Top Business Headlines newsletter conveniently delivered to your inbox in the morning or evening. Sign up today.

Coronavirus information
Coronavirus information
The Zero Canada Project provides resources to help you manage your health, your finances and your family life as Canada reopens.
Visit the hub
Report an error Editorial code of conduct
Tickers mentioned in this story
Due to technical reasons, we have temporarily removed commenting from our articles. We hope to have this fixed soon. Thank you for your patience. If you are looking to give feedback on our new site, please send it along to feedback@globeandmail.com. If you want to write a letter to the editor, please forward to letters@globeandmail.com.

Welcome to The Globe and Mail’s comment community. This is a space where subscribers can engage with each other and Globe staff. Non-subscribers can read and sort comments but will not be able to engage with them in any way. Click here to subscribe.

If you would like to write a letter to the editor, please forward it to letters@globeandmail.com. Readers can also interact with The Globe on Facebook and Twitter .

Welcome to The Globe and Mail’s comment community. This is a space where subscribers can engage with each other and Globe staff. Non-subscribers can read and sort comments but will not be able to engage with them in any way. Click here to subscribe.

If you would like to write a letter to the editor, please forward it to letters@globeandmail.com. Readers can also interact with The Globe on Facebook and Twitter .

Welcome to The Globe and Mail’s comment community. This is a space where subscribers can engage with each other and Globe staff.

We aim to create a safe and valuable space for discussion and debate. That means:

  • Treat others as you wish to be treated
  • Criticize ideas, not people
  • Stay on topic
  • Avoid the use of toxic and offensive language
  • Flag bad behaviour

Comments that violate our community guidelines will be removed.

Read our community guidelines here

Discussion loading ...

To view this site properly, enable cookies in your browser. Read our privacy policy to learn more.
How to enable cookies