The Great Canadian Pipeline Battle has been long, costly and painful, pitting capitalists against environmentalists against politicians against First Nations.
Not long ago, there were signs of detente along the path to vastly expanded oil shipments from the West Coast. But lately, they've fallen away again with a new, anti-pipeline government in British Columbia.
Now, with Year 4 of languishing crude prices coming into view, the economic promise may be diminishing.
Read more: For energy sector, challenges go beyond oil's latest price drop
For supporters of expanding export capacity for Alberta's oil sands output, the prize has always been an uplift in per-barrel returns that producers would reap from not being beholden to just one customer. Richer returns mean more spending, hiring and royalties gushing into public coffers.
That's Pipelines 101 – new and different routes out of Canada, the theory goes, spell a sharp reduction in the price spread that currently undercuts Canadian oil versus competing supply. At its worst, about four years ago, the discount on heavy oil versus U.S. benchmark West Texas Intermediate had ballooned past $35 (U.S.) a barrel.
Back then, WTI suffered a gaping discount itself when measured against Brent crude, the international marker, thanks to another transportation squeeze out of the Cushing, Okla., storage hub. It meant a double-whammy for Canadian producers, which were essentially forced into a half-price sale compared with Brent.
That's ancient history though. As Canadians kept waging trench warfare over pipelines, companies beefed up oil-by-rail capacity as a relief valve and the price differentials shrunk. But a much bigger problem was already brewing – a global oil glut that crushed prices everywhere.
Today's discount on Western Canadian Select heavy oil is now a puny $10 a barrel below WTI. The problem is that WTI is hovering at just over $47, and Brent is only $2.50 a barrel more than that. It doesn't matter where the oil is getting shipped; it's barely breaking even.
The big question, after a decade of teeth-gnashing over pipelines in Canada: Has the market moved on?
TransCanada Corp.'s Keystone XL pipeline to southern U.S. refineries will be a key test. Last week, The Wall Street Journal reported that the company is struggling to sign up shippers following 10 years of political ups and downs to get the project moving. This comes after U.S. President Donald Trump cleared way to put it back on track following his predecessor's rejection.
Now, U.S. refiners have their pick of crude-oil sources from multiple other conduits and appear reticent to commit to long-term contracts.
Producers, meanwhile, would likely prefer to get their barrels to other markets via a route to the ocean as U.S. demand for ever more Canadian oil tails off, said Martin King, analyst at GMP FirstEnergy. It could prompt them to seek much better terms from TransCanada.
There's no question that oil companies will require more capacity to ship crude out of Western Canada, given most production forecasts. RBC Dominion Securities says it expects oil sands output to increase 900,000 barrels a day to 3.3 million by 2021, as projects that are now under construction start up.
That begins with 300,000 barrels a day this year and another 380,000 in 2018. These are huge numbers.
The oil is going to get to market somehow, whether it's by train or pipe. A good portion may travel via Kinder Morgan's planned Trans Mountain Expansion, the $7.4-billion (Canadian) project that's opposed by the ruling NDP-Green Party alliance in B.C. as well as a number of Indigenous communities along the route and along the coast. That's despite its having already won federal approval.
The oil patch and Alberta government are waiting on the project and its hoped-for benefits breathlessly, having elevated them to Holy Grail status as the provincial economy trudges out of a two-year recession.
Beware – the oil market rules, and its own problems of global oversupply could limit any riches that might accrue to the Canadian industry from its long-sought access to new markets.