Most, if not all, of the crude oil that would be transported via the proposed Keystone XL pipeline to the US Gulf Coast would not be exported, and the vast majority of refined product—about 70%—derived from it would be consumed in the US, according to a recent report by IHS.
In fact, the amount of oil sands flowing into the US would still increase regardless of whether Keystone XL is built, according to the report, which analyzed the outlook for oil sands and other heavy crudes in North America.
“There is a common misunderstanding that somehow most or all of the oil shipped to the US Gulf Coast via the Keystone XL pipeline would be exported to other countries,” said Aaron Brady, senior director for IHS Energy.
The US Gulf Coast is the world’s largest single refining market for heavy crudes—including that produced by Canada, Mexico, and Venezuela—“making it unlikely these barrels would be exported offshore,” Brady said. The overwhelming majority of refined products produced in the gulf in fact are consumed in the US, “regardless of the crude source,” he said.
Some 2.7 million b/d of refining capacity on the Gulf Coast has been optimized for heavy sour crudes over several decades, the report said. As a result, the report predicts “a contest looms on the US Gulf Coast between Canadian and Latin American crudes.”
The report notes that “Venezuelan exports have also tilted away from the US market and towards Asia as a result of a set of Chinese government loans that carry along a commitment of oil supply.”
The report finds that, absent new pipeline capacity, the use of alternate transportation routes—including rail—would still result in the growth of oil sands imports into the US.
Most surprisingly, the report also found that overall increases in oil sands production is expected to continue despite the collapse in oil prices over the past several months. Oil sands projects, the report noted, have a very long time horizon, which makes them relatively resilient to periods of low oil prices.
“Currently there is over 1 million b/d of capacity at various stages of construction in the oil sands,” said Kevin Birn, director of the IHS Oil Sands Dialogue. “IHS anticipates existing projects will continue to operate and those under construction will proceed to completion. While investment will not be immune to the drop in oil prices, significant production growth is still expected over the coming years.”
Birn added, “IHS expects oil sands production to rise to 2.9 million b/d by 2020, an increase of 800,000 b/d (without diluent).”
