In a report released Monday, TD Economics calls pipeline expansion a "national priority."
"Canada's oil industry is facing a serious challenge to its long-term growth," says the report.
"Current oil production in Western Canada coupled with significant gains in U.S. domestic production have led the industry to bump up against capacity constraints in existing pipelines and refineries."
The report highlights four options to expand the market reach of Canadian crude: Asia via the West Coast, the U.S. Gulf Coast, Quebec and Atlantic Canada.
Of those, TD says the West Coast is the most economically feasible because of its short shipping distance and access to lucrative Pacific Rim markets.
Shipping crude to West Coast ports would cost about $3 per barrel, versus $5 to Montreal through the reversal of an existing Enbridge Inc. pipeline and $7 to the Gulf Coast through projects such as TransCanada's Keystone XL project.
However, accessing the West Coast has some downsides — namely vehement opposition to those projects on environmental grounds. There are concerns a spill from the pipelines themselves, or from tankers along the coast, could cause dire ecological harm.
"We assign no better than 50/50 odds that these pipes are built before the end of the decade," wrote CIBC analyst Andrew Potter in a report Monday.
There are about 2.9 million barrels of long-haul pipeline proposals on the table out of Western Canada.
That seems like a lot before one considers that about a third of that is represented by Enbridge's Northern Gateway proposed line to Kitimat, B.C., and an expansion to Kinder Morgan's Trans Mountain line to the B.C. Lower Mainland.
And with CIBC's forecast of annual growth of 100,000 barrels per day in conventional oil and 300,000 barrels of blended oilsands crude, the pipeline capacity is further pinched.
"Canada needs pipe — and lots of it — to avoid the opportunity cost of stranding over a million barrels a day of potential crude oil growth."
Potter said pipeline capacity out of Western Canada is fine for now, but "substantial progress" must be made on this front in 2013.
"We estimate that pipeline capacity out of the Western Canadian Sedimentary Basin could effectively be full in the 2014 time frame, suggesting little room for error/politicking in bringing on new pipeline capacity."
TransCanada CEO Russ Girling said in an interview Monday that the company's Keystone oil system is currently "chock-a-block full."
"Any day we have a hiccup in the system at all, differentials blow out," he said, referring to the increasingly volatile price gap between landlocked and seaborne crudes.
TransCanada has been looking to double the amount of oil that moves through Keystone and extend its reach into the Gulf Coast market, but the Keystone XL project has faced repeated delays.
There are concerns a spill from the pipeline could damage drinking water sources in the American agricultural heartland and increase U.S. reliance on so-called "dirty" oilsands crude.
More and more crude volumes are being shipped by rail these days, and that's not necessarily a good thing, said Girling.
"Railing is logistically more difficult. It's more expensive. It poses more environmental risk. Yet, because of the constraint people are starting to do it in larger and larger and larger quantities," he said.
"Society has got to make some choices here as to how they want the crude oil to move."
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