Oil shippers would open space in plugged Canadian export pipelines, currently running at 98% capcity, by improving the quality of their product, the National Energy Board (NEB) said.

Thinners are 30-50% of bitumen cargoes delivered for the country’s top natural gas user, Alberta thermal oilsands extraction, said an NEB report to the federal natural resources ministry.

The molasses-like, low-grade product was about 2 million b/d, or 56%, of Canada’s 3.6 million b/d of oil exports to the United States in 2018, according to the report “Optimizing Oil Pipeline and Rail Capacity out of Western Canada.”

“Fully upgrading more raw bitumen into synthetic crude oil — SCO, a high-quality light oil equivalent — or partially upgrading more raw bitumen into heavy or medium sour oil, would reduce the need for diluent and free up space in existing pipelines,” the report said.

Improving oilsands product quality would also cut or eliminate 215,000 b/d of costly Canadian imports of the chief bitumen diluent, gasoline-like condensate, from the U.S. Midwest on Enbridge Inc. and Kinder Morgan Inc. pipelines, the NEB said.

The board estimated that rising Canadian natural gas liquids output could replace most bitumen thinner imports in as little as two years. It added that Enbridge and Kinder Morgan pipelines could be converted into oil export routes.

The report follows further delays to 1.2 million b/d of Canadian export pipeline capacity additions. Construction permit delays postponed completion of a 370,000 b/d Enbridge pipe replacement program for a year until 2020. TransCanada Corp. also lost a legal battle Friday to set aside a U.S. court injunction stalling the 830,000 b/d Keystone XL project.

The Alberta government anticipated the pipeline logjam by enacting an oil production cut to prop up bitumen prices, offering grants and loans to upgrader proposals, and pouring C$3.7 billion ($2.8 billion) into a railway tank car leasing program.

The new NEB report recited doubts about bitumen upgrader and rail shipping schemes that surfaced in a board canvass of 30 industry participants and expert agencies for cures to the Canadian export pipeline bottleneck.

“There are several potential solutions to further optimizing capacity but most of them would require structural changes to the market, significant investments, and a long time horizon,” NEB said. “However, uncertainty regarding if and when incremental pipeline capacity will come online has ripple effects across industry by hampering investment decisions…

“Rail is not a perfect substitute for additional pipeline capacity. Moving crude by rail is more expensive and becomes less economic if price differentials [discounts inflicted on low-grade bitumen] narrow.”

The board added that “arranging transportation for crude by rail has a long lead time and impacts shipment of other goods.” As a result, “any policy action has the potential to create unintended consequences given the complexity of the system.”

A less disruptive, cheaper and faster partial answer would be creation of a Canadian counterpart to the U.S. Energy Information Administration (EIA), NEB said. The board predicted following the American example of timely, free public reports on industry behavior would enable improved marketing and production planning.

“For example, if small producers knew storage was almost completely full or that refineries were shut down, then they could anticipate not being able to sell or store their product, and might decide to reduce production. Data regarding refinery crude runs and refinery outages would also be beneficial for most market participants for planning purposes.”

The only casualties of creating a Canadian counterpart to the EIA would be consulting firms that currently compile industry data packages and sell them for high service fees, the board said.