Monday, May 19, 2014

Oil Imports from Canada Continue to Grow

In mid-April 2014 the U.S. Department of State announced that it will delay with no definite period of time cited a decision on the Keystone XL Pipeline. At this point it seems unlikely that any decision will be made in 2014 and unlikely that this pipeline and route will obtain a Presidential permit from this Administration. Though the Keystone XL pipeline seems to have become a symbol to protestors, in truth Keystone XL is unlikely to impact the rate of extraction of the Canadian oil sands or the demand for heavy crude oil at the six Gulf coast refineries. No matter what action the Administration chooses to take on this portion of the pipeline-approve, reject, or stall- the oil sands are not staying in the ground in Canada. There is world demand for heavy crude oil and it will be met. The Texas refineries are optimized for heavy crude either from South America or Canada. The crude oil will come by pipeline, boat, truck or rail road.

As you can see in the charts below Canadian imports of oil continue to grow while overall U.S. oil imports (and consumption) have fallen. According to the U.S Energy Information Administration total U.S. consumption of petroleum products has fallen 11% since 2007 to 6.748 billion barrels a year. Imports of petroleum products fell by almost 21% over the same period with the difference made up by domestic oil production. In addition, between 20012 and 2013 petroleum imports fell by an additional 7.5%. Overall, as a nation, we are using less petroleum products and producing more of what we use.

Canadian crude is flowing into the United States by truck, rail and pipeline. Back in July 2013 the Minnesota Public Utilities Commission approved plans for Enbridge Energy to increase the capacity of the United States portion of their Line 67 (formerly the Alberta Clipper Pipeline) in Minnesota. Though construction is to be completed on this Phase I expansion in July 2014 Enbridge still requires a Presidential Permit to expand their oil shipment across the U.S.-Canadian border and the US State Department is conducting an environmental review of the expansion plan potentially delaying or stalling the pipeline project. This request differs from the Keystone XL request because the pipeline in question is already in place and the request is to increase the capacity by upgrading the pumping stations.

Oil sands production and development will slow or accelerate depending on oil price trends, regulations, and technological developments. The Canadian oil sands have been known for decades, but until oil prices rose and technology improved these oil deposits were too expensive to exploit beyond the limited scope of surface mining. Advances in technology in both oil sand extraction and refining techniques and rising oil prices altered the economics and have made the extraction of oil sand possible. While the advances in extraction techniques have quadrupled recoverable oil reserves and moved Canada into second place in proved world oil reserves, it requires more energy to produce the oil and increases the carbon footprint of the crude as compared to fracked light sweet crude from Texas or Montana. I believe that opponents to the pipeline projects object primarily on concerns for increasing greenhouse gases in the environment. Opponents contend that extracting Canada’s heavy crude oil releases between 10-17% more greenhouse gases than conventionally extracted oil. I have not reviewed the studies that are the basis of that claim so I hold no opinion.

Nonetheless, the Canadian oil is flowing into the U.S. and the Oklahoma to Texas Seaway pipeline that opened in January completing the crude oil pipeline from Canada to the Gulf Coast and has alleviated the bottleneck in Oklahoma. Canadian crude prices have recovered from their depressed levels last year and Canadian imports continue to increase.

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