The money that refiners make off the differential between the price of crude and refined products is a thin margin. The refining capacity in the east is satisfied mainly by light, high-quality oil imports, while most of Alberta’s bitumen heads south. Irving Oil and Suncor Energy are both looking at adding desulfurization units, hydro treaters and cokers to their refineries in Saint John and Montreal, respectively, in order to handle lower-cost bitumen and conventional heavy Canadian crudes. Such upgrades would change their refining economics, widening the crack spread by lowering feedstock costs. But adding a single 30,000 b/d coker unit costs something north of $1.5 billion. The Suncor and Irving refineries both lie on the path of the proposed Energy East pipeline and so their investment decisions would be based on the assumption that Albertan bitumen will remain a plentiful, low-cost feedstock with reliable producers for decades to come.
Canada’s eastern refiners could wind up competing for Albertan crude against European and Asian refiners. Any access to a market that pays a premium will drive up the price for eastern refiners. Western Canadian Select sells at a discount in North America to similar crude blends in Asia and Europe where the producer gets a higher netback. Albertan crude reaching coastal terminals will rebalance the local markets, potentially making refining margins slimmer and slimmer. In addition to higher market prices around the Asia Pacific region and possibly California, there’s also energy-hungry China to take into account. It has invested $50 billion in Canadian energy projects, including oil sands stakes and pipeline infrastructure, to get crude oil to tidewater—Chinese tidewater. A handful of highly determined state-owned companies are playing a long-term energy security game, which is based less on the bottom line than on getting oil on ships back to the Chinese mainland no matter the cost or the distance required.