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American appetite for Canadian oil reaches record high

American appetite for Canadian oil reaches record high

As US oil production continues to climb, foreign oil imports oil into the US continues to steadily decline. However, oil imports from Canada have been rising steadily since 2005 and shows no sign of slowdown despite the serious constraints in pipeline capacity.

 
SOURCE OF CRUDE OIL IMPORTS INTO THE UNITED STATES (Source: Energy Information Agency, November 2015)

SOURCE OF CRUDE OIL IMPORTS INTO THE UNITED STATES
(Source: Energy Information Agency, November 2015)

 

Although it would be nice to think the Americans are just being good neighbours, their heavy reliance on Canadian oil is more likely because our oil, particularly our heavy oil, is much cheaper than oil purchased from overseas. The spread between seaborne Brent crude and Western Canadian Select heavy oil presently stands at about US$20 per barrel, but the differential was well over US$50 a barrel in the good ol' days of triple digit oil prices. Many US refineries, particularly those located in the Gulf Coast, are better suited to processing a heavier feedstock, translating into better profit margins when running on Canadian oil.

 
2009-Cdn-crude-exports-US.jpg
 

As Canadian oil production continues to grow, the need for more infrastructure grows with it. Canadian crude exported to the US by rail went from virtually zero in 2010 to 140,000 barrels per day (bpd) in 2014. Those numbers are expected to level off as the Enbridge Line 9 pipeline comes into service later this year and conventional oil production continues to slow on both sides of the border.

 
CANADIAN OIL PRODUCTION VERSUS CONSUMPTION FORECAST (Source: EIA, November 2015)

CANADIAN OIL PRODUCTION VERSUS CONSUMPTION FORECAST
(Source: EIA, November 2015)

 

Transporting crude-by-rail is generally more expensive than pipeline, although the differentials have started to narrow as the rail companies (namely CP and CN) work to become more cost-competitive with pipelines in a low oil price environment.


US CRUDE OIL IMPORTED FROM CANADA BY TYPE (Q2-2015)

  • 495,983 bpd Light Conventional Oil
  • 135,984 bpd Medium Conventional Oil
  • 604,906 bpd Synthetic Crude Oil (upgraded bitumen)
  • 1,698,232 bpd Heavy Oil (including heavy thermal, bitumen blends and Western Canadian Select)

US crude oil imported from Canada in 2009: 1,960,000 bpd
US crude oil imported from Canada in Aug. 2015: 3,235,000 bpd

Source: Canadian National Energy Board (NEB) and US Energy Information Agency (EIA)


Canadian oil production continues to climb thanks to the Alberta oil sands. The oil sands now account for approximately 166 billion barrels of proved reserves, representing 97% of Canada's total proved reserves. Although the growth rate has been dampened slightly by the low oil prices and pipeline gridlock, heavy oil production out of the Western Canadian Sedimentary Basin is expected to grow steadily over the next decade.  Unlike conventional and offshore oil basins, which mature and decline over time, production from the oil sands will continue to grow and make gains in market share. Alberta now accounts for 80% of Canada's oil production, helping to make Canada the fifth largest oil producer in the world.

According to National Energy Board), 99.1% of Canadian oil exports are destined for the United States. That isn't for lack of demand from Europe or Asia. The problem is access to tidewater.

But Canada isn't the only country with uncompetitive energy policies and less-than-cooperative governments. Export restrictions also hamper oil exports on the south side of border. Thanks to the US oil export ban, Canada is the only country allowed to import US oil. Canadians consumed an estimated 500,000 bpd of US oil and refined products last year, imported exclusively into Ontario, Quebec and the Maritimes. Although the Enbridge Line 9 will help reduce US oil imports into southern Ontario, the industry is relying heavily on TransCanada's Energy East pipeline to feed western Canadian oil to refineries in Quebec and New Brunswick.

But hope springs eternal in the energy patch. Now that provincial and federal elections are behind us and all levels of government have their climate change ducks in a row, attention can now return to the less-glamourous task of creating jobs and reviving the Canadian economy. The completion of either Energy East or the TransMountain pipeline would go a long way to improve the sale price of Canadian heavy oil, make East Coast refineries more competitive, boost government revenues and create thousands of infrastructure jobs within our borders - all without spending a dime of taxpayer funds.

That would definitely be a win-win for Canada and all Canadians.

National Energy Board to post pipeline inspection reports online

National Energy Board to post pipeline inspection reports online

5 lessons learned from the failure of Keystone XL

5 lessons learned from the failure of Keystone XL

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