Western Canadian Select spikes in volatile trading after Kearl mine shutdown

Houston — Western Canada's benchmark heavy crude differential continued to move higher Sept. 3 in the wake of the Polaris Pipeline outage that caused the closure of the Kearl oil sands mine and may have affected additional output in Alberta.

Western Canadian Select at Hardisty, Alberta, traded as high as WTI CMA minus $8.50/b Sept. 3, sources said, before weakening to trade at WTI CMA minus $9.40/b, which is where the blend was assessed Sept. 2.

The nearly 900,000 b/d Polaris Pipeline that moves diluent from Edmonton to Canadian oil sands shut following a diluent leak east of the Fort McMurray Airport, according to pipeline operator Inter Pipeline. The diluent, which is mostly condensate, is blended with the heavy oil sands to prepare the crude for pipeline transport. Inter Pipeline spokeswoman Breanne Oliver said Sept. 3 that the clean up is progressing well, though there is still no confirmed timeline for when the pipeline will return to service.

The Kearl mine, which is operated by Imperial Oil and co-owned by ExxonMobil, was expected to average around 220,000 b/d of production in 2020, according to a second quarter earnings statement from Imperial. The company said in a statement Sept. 2 it had shut all production at its Kearl oil sands operation because of the pipeline closure.

"The facilities remain ready to ramp up to full production once the diluent pipeline is back in service and diluent supply is restored," according to the statement.

The Polaris pipeline services several oil sands projects in the region in addition to Kearl, including Husky Energy's Sunrise project in the Athabasca and Cold Lake regions of Alberta.

Husky Energy did not immediately respond to request for comment on operations at Sunrise.

Cenovus Energy also has operations connected to Polaris, but a Cenovus spokeswoman today said: "We are on a different segment of the pipeline that's not affected."

Grades that compete with WCS on the USGC seemed to rise slightly Sept. 3, with medium sour Mars bid at a premium of $1.45/b to cash WTI. Mars was assessed at a premium of $1.40/b to cash WTI Sept. 2.

The prospect of reduced Canadian production is helping to bolster differentials even as import data from the US shows signs of weakening demand. The US imported 3.03 million b/d of Canadian crude for the week ended Aug. 28, the US Energy Information Administration said Sept. 2, down 426,000 b/d from the 3.45 million b/d imported in the week ended Aug. 21.

Canada's crude-by-rail exports have also plunged to an eight-year low amid lackluster demand stemming from the coronavirus pandemic. Canada exported just 42,820 b/d of crude on trains in June, according to the latest government statistics, down 89.6% from a record 411, 991 b/d exported in February.