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Shell Divests $1B Canadian Oil Assets

Canadian Oil Sees Silver Lining To Decline In U.S. Shale

Canadian Oil Sees Silver Lining To Decline In U.S. Shale

After the slow and painful death of Canadian oil exports - helped along by crashing oil prices, a global supply glut, and the languishing Keystone XL Pipeline - Canada has opened up some other outlets for exporting its crude oil to refineries on the U.S. Gulf Coast, experiencing a two-fold increase since 2014.

According to new data, Canadian crude oil exports to U.S. Gulf Coast refineries topped 389,000 barrels per day last year—double the amount in 2014—and it was all made possible by new pipelines that came on stream over the course of last year.

The three new pipelines to the Gulf Coast—Seaway, Southern Access, and Cushing Marketlink—added a combined throughput capacity of 1.85 million bpd to the transport system for crude between Canada and the U.S., said Canada’s National Energy Board’s market analyst Melissa Merrick. Related: Offshore Lease Sale Disrupted by Protestors Shouting “Shut it Down”

All in all, Canada exported most of its 3.87 million bpd output, or 3.035 million barrels. Of this, 3.009 million barrels went to the U.S.

In the first week of January, Canadian crude oil exports to the U.S. reached an all-time record of 3.4 million barrels per day, according to preliminary data from the U.S. Energy Information Administration (EIA).

However, while this is good news for Canada, the figures aren’t quite as sensational as the headlines tend to be. The actual amount heading to the U.S. Gulf Coast is a relatively small portion of overall Canadian crude exports to its southern neighbor. The bulk goes to the U.S. Midwest, which received 1.916 million bpd last year from Canada.

At the same time, oil imports also increased, to 736,000 bpd, of which crude from down south accounted for 62.4 percent, or almost 500,000 bpd, up from around 340,000 bpd in 2014.

What’s more, according to Beth Lau from the Canadian Association of Petroleum Producers, the twofold increase is unlikely to be repeated this year because there is not enough throughput capacity. Related: Brussel’s Terror Attack Drives Europe Further Into Terrorism Rabbit Hole

This brings us back around to Keystone XL, which could have added 830,000 bpd of throughput capacity to the pipelines carrying crude to the Gulf Coast refineries had it not been cancelled by the Obama administration in November 2015. That’s not an insignificant amount of oil capacity, given the fact that Western Canadian Select (WCS) is trading at a substantial discount to WTI. The May contract for the Canadian crude closed at a bit over $13 per barrel on March 24, while WTI is well over $30 at the moment.

WCS is a real bargain for U.S. refineries. But it’s not going to come through Keystone.

But the absence of Keystone simply means that Canadian crude has to find other routes, both rail and alternative pipelines.

TransCanada, the would-be operator of Keystone XL, has now agreed to buy Houston-based Columbia Pipeline Group Inc. for $10.2 billion, which owns some 15,000 miles of gas pipeline running from New York to the Gulf of Mexico, along with one of the biggest underground storage systems in the U.S. Related: $40 Billion LNG Project In Australia Cancelled Amid Low Prices

At the end of the day, some believe that Canadian export figures indicate that Canada is gaining U.S. market share as a result of the oil price crisis, and as U.S. shale production gets shut in, waiting for better days.

“That’s the one piece of puzzle you don’t hear too much about — the market share Canada is gaining in the U.S.,” said Carl Evans, senior crude oil analyst at energy research firm Genscape, told the Financial Post.

But you don’t hear too much about it because it’s a bit of a red herring. According to Platts, Alberta’s crude is selling at a major discount because it doesn’t have enough export outlets. That means that if it wants to get overseas, it’s got to go through the U.S. for the most part, and even then, pipeline space is limited and more expensive (and dangerous) rail is often the only option.

By Irina Slav of Oilprice.com

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