Canada heavy oil price nears tipping point -analyst

Tue Jan 15, 2013 1:23pm EST
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* Deep discounts seen persisting for months

* $45-$50 break-even seen for conventional heavy oil

* SAGD oil sands can produce at sub-$30 a barrel

By Jeffrey Jones

CALGARY, Alberta, Jan 15 (Reuters) - Canadian heavy oil prices, pressured by a combination of tight pipeline capacity and delays in a U.S. refinery retooling, have fallen close to the trigger point for companies to begin shutting off some production, an analyst said on Tuesday.

Prices for Western Canada Select (WCS) heavy blend, a widely quoted grade, have fallen recently to around $50 a barrel, less than half the price of a barrel of international benchmark Brent, pressuring the bottom lines of producers.

With little in the way of new pipeline capacity expected in the coming months, the deep discount is expected to persist, said FirstEnergy Capital Corp analyst Martin King.

The first production that is likely to get shut down will be traditional heavy oil, in which low-volume wells pump crude without the aid of steam or other enhanced recovery, King said.

"You've got to think that the more conventional heavy is probably borderline right now," he told Reuters after speaking to an industry audience in Calgary.   Continued...