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John Daly

John Daly

Dr. John C.K. Daly is the chief analyst for Oilprice.com, Dr. Daly received his Ph.D. in 1986 from the School of Slavonic and East European…

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Following Keystone Rejection Canada's Oil Sands Headed to China

Following Keystone Rejection Canada's Oil Sands Headed to China

Beginning in 2005, Congressional Republicans and the oil industry touted the 2,147 mile-long Keystone XL 830,000 barrel per day (bpd) pipeline, running from Canada’s Hardisty, Alberta oil sands to U.S. refineries on the Gulf of Mexico.

But last month, in an attempt to force a decision from the Obama administration on the pipeline, congressional Republicans tacked a rider onto legislation extending the payroll tax cut by requiring the government to decide within 60 days on the issue, which was rejected for the foreseeable future.

Furious at the setback, Canadian Conservative Prime Minister Stephen Harper threatened to sell the output to China. Last week Harper made an official visit to China and the fruits of that trip are already evident. During a Canada-China business dinner in Guangzhou Harper informed his audience, “We are an emerging energy superpower. We have abundant supplies of virtually every form of energy. And you know, we want to sell our energy to people who want to buy our energy. It's that simple,” adding that virtually all of Canada's energy exports currently go to the U.S. and that it was “increasingly clear” that Canadian commercial interests are best served by diversifying its energy markets.

Guangdong Province Governor Zhu Xiaodan, who attended the dinner, noted that southern China consumes an enormous and ever growing amount of energy and needs additional supplies, telling his guest, "It's our hope in the future we can import more high-quality energy and resource products from Canada." U.S. government statistics bear Harper’s assertions out - according to the U.S. Energy Administration Canada is now the leading exporter of oil to the United States, providing 2.6 million barrels per day (mbpd) of the 9.03 mbpd the U.S. imports every day.

But for Ottawa finding alternative markets is an increasingly high priority, as oil sands have been under development in Alberta since 1967 and investments there now exceed $97 billion.

An alternative to the fickle Americans seems to be on the horizon and Zhu’s hopes have been answered.  The Calgary Herald reported on 17 February that Canadian oilsands producer Cenovus Energy Inc. has sent its first shipment of crude oil to China.

Not via the controversial alternative to Keystone XL, the proposed Northern Gateway pipeline, designed to ship oilsands to Canada’s Pacific coast. According to Cenovus Energy Inc. president and chief executive officer Brian Ferguson, the company has sent its first half tanker-load of oil of roughly 250,000 barrels, to an unspecified Chinese customer.

After telling reporters that Cenovus Energy Inc. tripled its fourth-quarter 2011 profits over the corresponding period in 2010 Ferguson said, "We actually just sold our first cargo last week. It's very significant because what it allows us to do is establish a relationship with refineries in terms of how they value and price Cenovus crude. So it's very significant strategically."

Perhaps not surprisingly, Ferguson participated in Harper's trade mission to China.

How did the Cenovus Energy Inc. oilsands reach Canada’s western coast for transshipment?

According to Ferguson, his firm utilized the existing TransMountain Pipeline, which runs from Edmonton to the Westridge Marine Terminal near Vancouver, sending 12,000 bpd through the facility. While most of Cenovus Energy Inc. oilsands’ oil began to be shipped in late 2011, the majority was sent to customers in California and represents less than 10 percent of Cenovus Energy Inc.’s overall oil output, it helped generate the massive profits that Ferguson crowed about, because the crude received a premium over mid-continent Canadian oil by being priced in relation to Brent crude instead of the less expensive West Texas Intermediate.

As Ferguson noted, “It's allowing us to get tidewater pricing off Brent so there's a significant uplift per barrel in terms of price realization.”

Cenovus Energy Inc. has bigger long-term export plans for its oilsands production beyond a mere 12,000 bpd. Cenovus Energy Inc. is a major backer of Enbridge Inc.'s controversial proposed 745 mile-long, $5.5-billion, 525,000 bpd Northern Gateway pipeline, which would stretch from Bruderheim, northeast of Edmonton, to the coastal community of Kitimat in British Colombia, providing an export link to customers in Asia.

But the Northern Gateway pipeline, with a projected operational date of 2017 is hardly a done deal, having aroused the ire of Canadian environmentalists nationwide.

And Cenovus Energy Inc. is thinking beyond the present, as Ferguson noted that the firm is continuing to seek a joint venture partner for its Telephone Lake oilsands assets in northern Alberta, with international investors increasingly expressing interest.

So, floods of yuan or a pristine environment? It seems that Harper’s government and Cenovus Energy Inc. have no doubt where Canada’s future lies.

By. John C.K. Daly of Oilprice.com

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Leave a comment
  • TheLaughingMan on February 22 2012 said:
    Stephen Harper, Rob Nicholson, John Baird and Vic Toews are fascists and would turn our country into an Orwellian nightmare! They should be tarred and feathered, then banished from Canada!
  • thor leonard on February 22 2012 said:
    Corporations do not want to take the chance of being on the reciept of another enviornmental lawsuit. EPA's cannot law suit your present customer. When the EPA's are changed. The Perpetrator of the Crime will be held accountable. Not the Customer. Rember the electrical power lawsuits of the late 1980's for the damage caused to the enviornment. The Customer has taken the brunt of the suit. Three times bitten. Have learned our lesson well. We are not going to be civilized next time bitten.

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