Canadian oil production is more than two and half times domestic demand, yet the majority of crude oil demand in the country arrives via the United States, according to analysis by IHS Markit.
Some 55% of crude oil and condensate demand in Canada in 2019 was served either by imports from the US (600,000 b/d) or were sourced from domestic production routed through the US and then back into the country (480,000 b/d), known as reexports, the report said.
“The necessities of geography and the varying demands of markets for different types of crude underpin a highly complex and interdependent oil logistics system between Canada and the United States,” said Celina Hwang, director, North American crude oil markets, IHS Markit. “Although this study highlights Canadian dependence on the United States for both supply and transportation, the relationship is truly symbiotic with both nations relying on one another to meet domestic demand each day.”
A major factor in the workings of the system is that 95% of Canadian production occurs onshore, inland and often in areas far from its main consuming areas in the more populous central regions of Ontario and Quebec, the report said. The type of oil demanded in different regions also plays a role. Refineries in the US Midwest and US Gulf Coast invested in heavy processing units take advantage of growing western Canadian heavy oil production, while refineries in Ontario and Quebec remained geared toward lighter crude grades.
“Although not well-recognized, the US Gulf Coast refinery complex is only slightly farther away from western Canadian production than Ontario and Quebec, and it’s significantly larger and already configured to consume significant volumes of heavy sour crude,” said Hwang. “That presents an attractive solution for both sides.”
Canada’s long-distance transportation system—which includes pipeline, rail, and marine transport—handled about 6.6 million b/d of crude oil in 2019, about 2 million b/d more than the country produced, according to IHS Markit data.
The demands on that transportation system are also set to increase in coming years, the report noted. IHS Markit’s 10-year production forecast estimated that, despite short- and medium-term impacts from COVID-19, Canadian crude supply is still expected to grow by nearly 900,000 b/d from 2020 to 2030.
“Most of the anticipated growth in Canadian production is set to come from the ramp-up and optimization of existing projects,” said Kevin Birn, vice-president and chief Canadian oil market analyst, IHS Markit. “That growth is coming, and transportation capacity is needed to keep pace. IHS Markit estimates that, by just 2025, total crude movements could increase by more than 650,000 b/d from pre-pandemic levels.”
Pipeline capacity could see the greatest increase to keep up with the added supply, followed by an increase in marine tanker traffic. However, delays in new pipeline projects could result in greater movements of crude-by-rail than currently anticipated, the report said.
Additionally, potential disruption to existing pipelines—such as attempts to shut down the Enbridge Line 5 pipeline that serves Detroit and surrounding areas of Michigan and Ohio, as well as Toronto and surrounding areas in Ontario and Quebec—could have significant implications.
“Differing views on the pace of energy transition have put the energy interdependency between Canada and the United States under some strain,” Birn said. “Any disruption of existing infrastructure could have significant implications
for Canada, the broader North American system, and energy security.”