The gap between Canadian heavy oil prices and global benchmarks has narrowed in recent weeks with the help of rail transport; however, new pipelines will still be needed to move increasing volumes of Canadian oil and gas, federal Natural Resources Minister Joe Oliver says.
"Rail transport has been very helpful. It's a great supplement. It's been important, but it cannot replace over the long term, in size, the volume of oil and gas that has to be moved," the minister said.
The Harper government and industry leaders have pointed to pipeline congestion as to why additional pipeline capacity – whether it be the Keystone XL pipeline from Alberta to Texas, or the proposed Northern Gateway west to the B.C. coast – is needed to get to more lucrative markets. A lack of market access has been highlighted as the reason for the higher-than-normal discount, or the differential, on Canadian crude over the past winter months.
However, in recent weeks the differential has narrowed dramatically, in part because producers have moved record amounts of crude by rail in order to reach U.S. refineries able to process heavy oil. Mr. Oliver said that doesn't mean new pipelines are less important.
"There are inevitably gyrations in price," he said on Thursday after speaking to a business crowd at a University of Calgary event.
While the spread between Western Canadian Select crude and West Texas Intermediate oil hit $40 U.S. in January, the differential for May sales was $13.81 on Thursday.
Mr. Oliver made the comments the same day as the U.S. State Department holds a public hearing in Grand Island, Neb. regarding the Alberta-to-Texas Keystone XL pipeline – which has been targeted by environmentalists who hope to stifle oil sands production growth.
The minister said he's still cautiously optimistic about the pipeline eventually being approved. Mr. Oliver said no matter what the outcome, the U.S. and Canada "have the largest bilateral, commercial relationship in the entire world."
"We do not want anything to undermine that relationship."