The oil patch is so optimistic, you know? As soon as something good happens–especially against a backdrop of bad–we throw a party. And with the current WTI/WCS price differentials hammering Canadian producers–not to mention provincial and federal coffers–as soon as the spread narrowed in the summer, we threw this happy party. But then… Wait, I’m telling the story all wrong. Just go read the story I wrote about the return of the bitumen bubble, The Bitumen Bubble is Back With a Vengeance (Canadian Business, December 9, 2013).

Featuring quotes from Clinton Roberts, partner with PricewaterhouseCoopers LLP in Calgary, and the University of Alberta’s Andrew Leach. And I had some really stellar ones from Michael Hurst, a senior oil and gas lawyer at Dentons LLP, but we had to cut them. Alberta Finance Minister Doug Horner gets a brief cameo.

Full text at Canadian Business…

…and below.

No sooner had the spread between West Texas Intermediate (WTI) crude oil and Western Canadian Select narrowed to US$10 a barrel last summer, and some analysts declared the big differentials gone for good, than the Canadian oilpatch’s bugbear started poking its nose up again. In early November it leapt past US$40, the level that made lack of market access for energy a national calamity last winter.

For once, a politician had it right. Alberta Finance Minister Doug Horner had warned in late August that, “like a bad penny,” the differential would return. Weeks later, a FirstEnergy Capital report still clung to the idea that ramped-up rail transportation, new heavy-oil refining capacity in the U.S. Midwest and the easing of the storage glut in Cushing, Okla., would keep this monster on a leash. But now, prodded by two refinery fires and increases in oilsands output, it’s on the rampage once more, slashing netbacks for Canadian producers and the Alberta government’s royalty take.

The bitumen bubble’s return shows that crude supply-demand fundamentals have not changed. The shale revolution is not over, and U.S. production continues to increase. And though some oilsands projects have been put on hold, the Canadian production trendline is going up too. The industry’s fling with train transport aside, continental supply is exceeding take-away capacity.

“The industry needs continuous access to new pipelines over the next five years to solve the problem,” says Clinton Roberts, senior vice-president with PricewaterhouseCoopers. That’s pipelines plural. Any one of the proposed projects—Keystone XL, Northern Gateway, TransMountain or Energy East—by itself isn’t enough; even all four may not necessarily keep up with production growth.

Another problem—one that Keystone XL fails to address at all—is that Canadian crude effectively has one export customer, the U.S., which is moving towards self-sufficiency. As the enduring spread between WTI and the global Brent benchmark shows, global demand growth is coming entirely from emerging markets.

Andrew Leach,  a business professor at the University of Alberta, says that even absent new pipelines, a long-term differential greater than the cost of moving barrels by rail “doesn’t make economic sense.” But, with the higher scrutiny over railway transport post-Lac Megantic, those costs will be driven higher. Over time, then, “the diff” is not getting any smaller. –Marzena Czarnecka