America's Midwestern oil pipelines will be in high demand during the next decade as competition for shipping capacity heats up between Canadian oil sands producers and North Dakota companies tapping the Bakken Shale reserves, according to a Wood Mackenzie study released yesterday.

Alberta oil sands producers are already experiencing price instability as a result of growing competition with the Bakken oil companies, the report says.

"Canadian producers witnessed volatile and heavily discounted crude prices earlier this year," according to the Wood Mackenzie study. "We believe this is a reflection of the oversupplied US Midwest market, where the majority of Canada's oil is exported. The massive growth of North American tight oil, particularly North Dakota's Bakken play, is placing pressure, and competing directly with Canadian barrels moving south."

That rivalry will only get worse in the coming years as at least 16 new Canadian oil sands projects come online, the report says. Canadian bitumen production, currently at 1.7 million barrels per day, could double to 3.5 million barrels per day by 2018. Meanwhile, Bakken oil production is expected to double to 1.2 million barrels per day by 2015.

The report comes at a time when Canadian Prime Minister Stephen Harper has been pushing for speedier oil sands development in that country and seeking to use a national budget bill to ease environmental laws and prevent environmental groups from organizing against export pipelines (Greenwire, June 4).

At the heart of the political battle is the controversial Keystone XL pipeline, TransCanada Corp.'s $5.3 billion project to carry bitumen from Alberta to the Texas coast. President Obama delayed the Keystone XL in January. Last month, TransCanada submitted a new permit application for the project (Greenwire, May 4).

The Wood Mackenzie report predicts that oil sands and oil shale producers in both countries are likely to face more intense price volatility in shipping hydrocarbons through the Midwest unless three key pipeline projects -- including Keystone XL -- are built to carry bitumen to America's Gulf Coast.

Along with Keystone, the report identified the Enbridge Lakehead System and the Kinder Morgan Express pipelines as "crucial oil sands export routes."

"Outages, delays in planned expansions, or unforeseen issues at any of these lines could result in volatile prices, directly impacting Canadian producers," the forecast says.

The oil pipeline bottleneck could also be eased if Canada builds new pipelines to carry the Alberta bitumen to oil export facilities along the Pacific and Atlantic coasts. However, proposals to build pipelines through British Columbia on the West Coast and to ease capacity to the East Coast face serious opposition from environmental groups and First Nations groups in Canada.