A recent report by Finance Canada says that the discount to international prices at which Canadian oil and gas exports are selling, is causing the country to lose $4 billion in revenue. The way to fix the problem is to build new pipelines and export terminals to access world markets. Prices for Canadian oil in the U.S. has long been $15-20 per barrel below world market price because Canada simply has no other buyer. This difference has in recent months increased to $30-$40 per barrel as the world market price outside North America has increased while the price from the U.S. has remained stagnant or even fallen due to an oversupply of crude at the gathering hub in eastern Oklahoma where the Canadian product flows.
Canada's Finance Minister Jim Flaherty has nevertheless rejected the idea of giving tax breaks on liquefied natural gas (LNG) export facilities that would be built on the coast of British Columbia in the west. Producers have wanted to be able to use accelerated writeoffs by having Ottawa treat them as last year to accelerate environmental reviews of such projects as the Northern Gateway pipeline that is proposed by the Canadian company Enbridge. This would in fact be a twin pipeline, one to receive natural gas condensate and one to send out bitumen from the Alberta oil sands. PetroChina signed an agreement in 2005 to buy 200,000 barrels per day, to be exported via tankers, but suspended the agreement in 2007 due to delays.
Meanwhile, political momentum has been developing to increase west-to-east energy flows inside Canada. One idea has been to reverse the flow of the Interprovincial Pipeline (IPL), originally built to carry product from west to east back to its originally planned direction. Another, involving the conversion of a natural gas line to crude oil, could enter into service by 2017 subject to regulatory approval. (Enbridge began its corporate life in 1949 as the Interprovincial Pipe Line, Inc.) This is a no-brainer, as it would increase domestic refining, reduce the prices in eastern Canada now relying on imports from the world market, and eventually allow exports from eastern Canada to international destinations.
Enbridge opened Thursday on the TSX at C$46.55 (45.96 on Wall Street), on the march upwards from 17 since November 2008 but with a current P/E ratio approaching 60. It has been near the top of its Bollinger Band for almost a month but has been progressing so slowly and steadily that it retains good momentum and is still not overbought, while other medium-term technical indicators also remain favorable.