Shaun Polczer, CALGARY: Canadians could be forgiven for thinking these are the best of times for the oil sands, with US WTI prices of $100 a barrel flashing across their televisions. But few realise that Canadian oil is barely fetching $70/b in a North American market that is already trading at a 20% discount to North Sea Brent.
Threats to Canada’s ambitious production-expansion plans loom large, thanks to the Cushing problem, which is distorting markets and posing a real financial threat for $100 billion of new capital projects to double oil-sands output by 2020. Widening price discounts are eroding returns at the main Cushing, Oklahoma, trading point that sets North American benchmark crude prices. It’s a sharp reminder of the financial risks that accompany the rewards of developing the world’s third-largest oil reserves.
Most of Canadian production consists of heavy oil, which already receives a quality...