Watching Government: Canadian oil choices

Feb. 14, 2011
It was hardly surprising that proponents and opponents of the proposed Keystone XL crude oil pipeline project said that EnSys Energy's recent analysis for the US Department of Energy supported their viewpoints.

Nick Snow
Washington Editor

It was hardly surprising that proponents and opponents of the proposed Keystone XL crude oil pipeline project said that EnSys Energy's recent analysis for the US Department of Energy supported their viewpoints.

TransCanada Corp., the project's sponsor, said on Feb. 2 that the report confirmed the pipeline would help reduce US oil imports from outside North America. Environmental groups said it showed US refineries really don't need the pipeline because other routes exist.

So what, exactly, did the EnSys report say? Apparently, it was a little bit of both.

In its executive summary, the report said that inadequate Western Canadian Sedimentary Basin export capacity from 2005 to 2008 led to new export pipelines, notably Enbridge's Alberta Clipper and TransCanada's Keystone Mainline and Keystone Mainline Extension projects.

These are coming online, adding more than 1 million b/d of capacity and creating a surplus for moving WCSB crudes across the border. Capacity to get the oil to the Gulf Coast remains limited to less than 100,000 b/d, however.

"The future level of US refining activity is projected as relatively insensitive to the combination of pipelines available to carry crude out of the Edmonton/Hardisty area," EnSys's report continued. "However, WCSB crude routings and future levels of WCSB imports into the US will be [more] sensitive."

Asian markets

Canadian heavy oil exporters will have the principal choice of selling to either Asia or the US in the next 20 years, it indicated. "Led by China, which has bought heavily into oil sands production, Asia constitutes the major region for future petroleum product demand and refining capacity growth and offers Canada diversification of markets," it said.

Transportation costs to China, Japan, South Korea, and Taiwan via pipeline and tanker are less than for moving that same crude to the US Gulf Coast through a pipeline, it added. EnSys's study indicated that this market could absorb at least 1 million b/d if such a route was developed, compared to the less than 50,000 b/d of WCSB crudes which move to Asia now.

Canadian Prime Minister Stephen Harper, at a Feb. 4 joint press availability with US President Barack Obama following their White House meeting, said that the US clearly will need more fossil fuels for the foreseeable future.

"The choice that the United States faces...is whether to increase its [production] capacity; to accept such energy from the most secure, most stable, and friendliest location it can possibly get that energy, which is Canada; or [acquire it] from other places that are not as secure, stable, or friendly to the interests and values of the United States," Harper observed.

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