The US will continue to need hydrocarbons from the oil sands of Canada despite its rising output of light oil from tight formations, which nevertheless are reshaping markets for heavy Canadian material, says IHS.
Although production from tight formations in the US eclipsed that of output from the Canadian oil sands last year—2.2 million b/d vs. 1.7 million b/d—it does not eliminate the US need for imports, according to the IHS CERA Oil Sands Energy Dialogue report. If demand changes little and US conventional supply declines, tight oil can replace only about one third of US net oil imports by the end of the decade.
Expansion of tight oil supply has created transportation bottlenecks and glutted the US Midwest, destination of 80% of exports from the oil sands region, IHS points out.
Synthetic crude oil (SCO) from upgraders in Alberta, historically more than half the supply from the oil sands, now competes with tight oil. Most future supply from the oil sands will be blended bitumen, similar to heavy crude oils the US now imports.
Most potential market expansion for oil sands producers lies on the US Gulf Coast, where refineries have capacity for processing heavy crude oil totaling 2.4 million b/d, according to IHS. There, oil sands blends compete with heavy crude from Mexico and Venezuela.
On the West Coast, where 90% of refining capacity is oriented toward the heavy end of the crude slate, the potential market for bitumen blends might exceed 700,000 b/d, IHS says. But that market remains “largely untapped” by oil sands producers.
Discouraging penetration of the West Coast market are uncertainty about pipeline construction and terminal expansion and California’s low-carbon fuel standard, IHS says.
On the East Coasts of the US and Canada, most refining capacity is oriented toward lighter feedstock so those areas offer limited market potential for heavy blends.
Outside North America, the Asian market for Canadian bitumen blends holds potential. IHS cites China, where refining capacity now estimated at 10 million b/d is expected to nearly double by 2030. Whether the new capacity will be able to run large volumes of heavy feedstock remains uncertain, however, at least partly because investors remain unsure about when and how much of the material will be available.
IHS notes that pipeline development will greatly influence the oil sands market and future projects.
