WCS crude discount to narrow after TMX pipeline expansion: Canadian Natural

Canadian Natural Resources is anticipating the Western Canadian Select and the WTI differentials to narrow early into 2024 as 590,000 b/d of new egress is added in Western Canada with the start-up of the Trans Mountain Expansion pipeline, President Tim McKay said Nov. 2.

"The line filling process will take 4.5 million barrels out of the market and this is positive for light/heavy differentials as they will tighten," McKay said on the company's third quarter 2023 earnings call.

Along with the line filling -- which will take about seven weeks -- refinery maintenance in the US and Canada is also wrapping up, which will further tighten the WCS/WTI differentials, as demand for heavy barrels will increase, he said, without giving any figures.

CNR has 94,000 b/d of capacity on TMX, and the company's marketing unit is doing its "homework on preparing various crude slates" that it plans to ship to new markets, McKay said.

"We produce different types of crude that can be developed depending on market demand," McKay said. "We are awaiting the full start up of TMX following line filling. There is already an increasing demand for egress as more barrels are being produced in the [Western Canadian Sedimentary Basin]."

Operator Trans Mountain Corp. will host a two-week open season from Nov. 8 for 54,000 b/d of firm service capacity on the existing Trans Mountain pipeline, the company said Oct. 30.

Transportation service under the new contracts would commence on Feb. 1, 2024, and would be in effect until the Trans Mountain Expansion Project goes into service or until the expiry of a six month period on Aug. 1, 2024 -- whichever occurs first -- the company said.

Fellow producer Cenovus Energy also expects the price differentials to narrow as line filling gets underway in early 2024.

"We expect them [differentials] to tighten and get in the order of half of where we are today," Cenovus' Chief Commercial Officer Drew Zieglgansberger said separately Nov. 2 on his company's earnings call, adding refineries in Asia could potentially be a market for its crude oil.

Meanwhile, Vijay Muralidharan, director of R-Cube Economic Consulting, said Nov. 2 that a bulk of the barrels currently goes to refineries in Washington, but under the Trans Mountain Expansion pipeline, the US Gulf Coast will take the barrels if the price is right.

"The expansion is being completed to offer the best price for WCSB producers and both Asian and European refiners will compete by paying a premium for those barrels on TMX," Muralidharan added.

Platts, part of S&P Global Commodity Insights, last assessed WCS at Hardisty, Alberta, at a $24.95/b discount to Cushing WTI on Nov. 1, widening from a $10.20/b discount on July 5. Discounts typically widen during the fall, when planned refinery maintenance reduces demand for Canadian crude, especially in the US Midwest.

However, discounts on the USGC have not widened as dramatically because of steady export demand. Platts last assessed WCS at Nederland, Texas, at a $7.90/b discount to Cushing WTI, widening from a $1.85/b discount on July 6.

Canadian Natural's Q3 output rises on year

Canadian Natural Resources' total output in the third quarter was 1.394 million b/d of oil equivalent, up 4% compared to 1.338 million boe/d in the third quarter of 2022, McKay said, attributing the increase to efficient operations across the company's portfolio of assets that include the legacy Horizon, Kirby and Jackfish oil sands; conventional crude oil facilities like Primrose; and liquids-rich natural gas assets in the Montney basin in Northeastern Alberta.

Of the total third-quarter 2023 production, crude oil and NGL made up 1.035 million b/d and natural gas made up 2.14 Bcf/d, he said.

CNR is the largest producer of synthetic crude oil in the Western Canadian Sedimentary Basin, and its output in the third quarter was 490, 853 b/d, compared with 487,553 b/d in the year-ago quarter, McKay said, adding CNR received a SCO pricing of C$108.55 ($78.95)/b in the third quarter of 2023 compared with C$120.91/b in the same quarter the prior year.

Following the completion of major turnaround at the Horizon oil sands, the company is targeting to maintain SCO production from its Alberta assets at around 500,000 b/d, McKay said.

At Horizon, after the planned turnaround in 2024, a reliability enhancement project that CNR is currently implementing will increase production by nearly 25,000 b/d in 2025, he said.

Additionally, as part of efforts to reduce downtime and increase overall reliability, the company is planning to shift maintenance to once every two years rather than annually, McKay said.