While Canadian oil producers are scrambling to sell their oil at a fair price due to a pipeline shortage to take away the crude to foreign markets, Canada’s own domestic oil supply could be threatened due to court decisions and heightened tension in the Middle East.
Canada, the world’s fourth largest oil producer, may not be as energy secure as its producer status would otherwise suggest, Peter Tertzakian, Executive Director of the ARC Energy Research Institute in Calgary, Alberta, writes in Financial Post.
That’s because Canada lacks a west-east oil pipeline to carry crude from the oil-rich Western Canada to the eastern provinces. Therefore, the eastern parts of Canada rely on imported crude oil, including via oil tankers. In addition, Central Canada’s fuel demand is largely met by the Sarnia refinery complex, whose vital source of crude supply is Enbridge’s Line 5.
According to Tertzakian, the unrest in the Middle East and the intense oppositions to the vital Enbridge Line 5 in Michigan increase the probability of Canada having to scramble to ensure it will have enough oil and fuel supplies, despite being the world’s fourth biggest oil and liquids producer behind the United States, Saudi Arabia, and Russia.
Increased tension in the Middle East and its most vital oil flow route, the Strait of Hormuz, could affect the global oil tanker traffic and consequently, Canada’s east coast seaborne imports of crude oil.
More than half of the oil used in Quebec and Atlantic Canada is imported from foreign sources, according to the Canadian Association of Petroleum Producers (CAPP). Related: An Unexpected Boon For Alberta’s Oil Producers
Canada imports around one barrel of crude oil for every seven and a half barrels it produces, the National Energy Board (NEB) estimates. Last year, Canada reduced its total oil imports by 12 percent over 2017, to 593,000 kbpd. Imports from the U.S. via pipeline accounted for more than 60 percent of those imports, and they increased by 6 percent compared to 2017. Canada also increased its imports from Saudi Arabia last year, to 109,200 bpd from 102,100 bpd in 2017, while it reduced imports from Azerbaijan, the UK, Algeria, and Nigeria, according to the NEB.
In New Brunswick and Newfoundland, most of the imported crude oil for refineries is shipped by oil tankers.
According to CAPP estimates, despite having the third largest oil reserves in the world behind Venezuela and Saudi Arabia, Canada imported US$14.9 billion (C$19.4 billion) worth of foreign oil in 2018, and nearly all of this oil went to Ontario, Quebec, and the Atlantic provinces.
If some kind of disruption in global oil tanker traffic were to occur, eastern Canada would be left scrambling for oil and fuel supplies, because there are simply no pipelines to carry crude oil from Alberta to the east. The latest such proposal to remedy this constraint was the Energy East project, which was ditched in 2017.
Then there is the Michigan Attorney General Dana Nessel suing Enbridge Line 5, the dual oil pipelines running under the Straits of Mackinac because, she said, the 66-year-old pipelines “present an unacceptable risk to the Great Lakes.”
Line 5 is a vital crude supply source for the Sarnia oil refinery complex which supplies fuel in Central Canada. So if the U.S. were to cut off Line 5, they would cut Sarnia, Tertzakian says. Related: IEA: Huge Oil Glut Coming In 2020
Theoretically, Line 9 could have come to the rescue in case Line 5 were cut off and bring imported foreign oil via tankers from Montreal to Sarnia. However, since 2015, for economic reasons, Line 9 now flows in the reverse way—from Sarnia to Montreal, in a decision where costs had trumped energy security, Tertzakian argues.
Canada also had not insulated itself from supply disruptions with a strategic petroleum reserve (SPR) as it had opted out of creating an SPR when western nations agreed to keep reserves to use in cases of emergency after the Arab Oil embargo in the 1970s.
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Back then, Tertzakian recalls, Canada argued that it was energy secure in its supplies--and unfortunately, it hasn’t tested that argument since.
With increased probability of disruption in the Middle East and in Michigan, Canada could soon find out just how energy secure it is.
By Tsvetana Paraskova for Oilprice.com
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