Will nervous investors back away from infrastructure projects in western Canada, spooked by volatile global crude oil prices?
In a recent report, IHS Markit acknowledged the headwinds of insufficient pipeline capacity that challenge producers in the region, but the firm remains confident that crude production in western Canada will continue to grow. It pointed to recent growth, even as crude prices slumped, as a number of important infrastructure projects came online in the past few years.
“Constrained pipelines have driven deep discounts for western Canadian heavy oil beyond what would normally be expected based on quality and pipeline transportation costs,” IHS Markit said.
“The timing of future pipeline capacity and the physical act of construction have become critical signposts for the industry and investors alike,” the report said. The need for additional pipeline capacity has become so critical that the Canadian government acquired Kinder Morgan Inc.’s Trans Mountain expansion project for C$4.5 billion (US$3.44 billion) in May.