Oil prices rose on Friday…
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Canada exported 3.2 million barrels of crude per day to the United States last year, the Energy Information Agency reported, a 10 percent annual increase and an all-time record high. In addition, Canadian oil exports increased as a portion of overall exports, to account for 43 percent of the 7.4 million bpd that the country imported in 2015.
On the other hand, Canada took in the bulk of U.S. oil exports, some 92 percent of them, or 422,000 bpd. Related: Tesla And Other Tech Giants Scramble For Lithium As Prices Double
The energy industry in both countries has been hit hard by the oil market downturn, but the Canadians seem to be doing a bit better because their oil is cheaper and because they found a niche to fill as the U.S. shale boomers started shrinking their operations.
What’s more, Gulf Coast refineries appear to be well equipped for handling Canada’s heavy crude—Western Canadian Select (WCS)—unlike most of the world, which sells at a discounted rate compared to other crude blends because of the processing difficulties that come with the extra weight.
Earlier in January, the EIA reported that Canadian oil imported to the U.S. averaged 3.4 million bpd. This is another record, trumping the 2015 average daily and suggesting the increase will continue, especially in light of new transport capacity coming online. Related: End Of An Era: Peabody Declares Bankruptcy
This capacity, it now seems perfectly clear, will not include Keystone XL, the controversial pipeline that TransCanada is currently suing the U.S. government over. There was opposition enough from environmentalist groups and government agencies when the project—which would have added 830,000 bpd of capacity to the transport network—was conceived. This has now been reinforced after the existing part of the pipeline, Keystone, leaked 17,000 gallons of heavy crude in South Dakota earlier this month.
Even leaving the leaks and the overall controversy aside, the fact that Canadian oil exports increased so much in 2015 and are continuing to increase suggests that Keystone XL is simply unnecessary, at least for the time being. The majority of analysts see a prolonged period of cheap oil, even though not as cheap as the $27 we saw at the beginning of the year. Related: Why India Matters More For Oil Than China
Now that prices are rising, Canada has also seen a side effect to its growing exports to the U.S. – the looney is going up, hovering around $0.78 to the U.S. dollar at the moment. Oil was one reason for the increase. The other was Bank of Canada’s decision to leave interest rates at 0.5 percent. According to observers, this is an indication that the economy is noticeably improving, even if the bank has no plans to actually raise rates this year.
It looks like the oil market isn’t looking that bad for Canada at the moment. Prices are higher than they were in the worst of times, but not so high as to reduce the competitiveness of WCS, and the Canadian dollar is also up, but not to an uncomfortable level. The Bank of Canada projects GDP growth of 1.7 percent for this year. Oil exports to the U.S. are one of the main reasons for the optimism.
In the meantime, every tank of gas you put in your car is probably close to half Canadian.
By Irina Slav for Oilprice.com
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Irina is a writer for the U.S.-based Divergente LLC consulting firm with over a decade of experience writing on the oil and gas industry.