More Alberta oil going east
Canada’s oilpatch will likely ramp up efforts to ship more crude to eastern Canada, a senior federal government official said Tuesday.
But Canadians shouldn’t anticipate the construction of costly new refineries to match the rise of oilsands production, a House of Commons committee was told.
The natural resources committee, at the request of the NDP, is looking into why Canada is building pipelines to ship diluted bitumen to Texas and China rather than ship it to underused refineries across Canada — including those in eastern Canada that rely on imports.
“Saying that we shouldn’t be shipping diluted bitumen (to foreign markets) is like saying we shouldn’t be shipping wheat, we should be shipping baked products only,” said Mark Corey, Natural Resources Canada’s assistant deputy minister in charge of energy.
Diluted bitumen “does have a high value as an export.”
Corey was responding to a question from New Democratic Party MP Claude Gravelle from northern Ontario. He had asked about Prime Minister Stephen Harper’s recent comment on east-west energy flows.
In an interview with Harper, the CBC’S Peter Mansbridge noted that many Canadians can’t understand why crude oil is imported in Atlantic Canada, sometimes from unstable countries like Nigeria, while companies are building pipelines like Northern Gateway and Keystone XL to send Alberta bitumen to refineries in Asia and the U.S. Gulf Coast.
“On a certain level I agree with you,” Harper responded. “It does seem odd, and I do think there are people out there in the marketplace looking at dealing with that particular sensitivity or insecurity.” Corey agreed a shift is occurring. “What the prime minister, I believe, is referring to is the fact that as oil production ramps up in Western Canada, you will likely see the market respond, and in fact we’re already seeing the market starting to respond.”
He cited media speculation that Enbridge Inc.’s Montreal-to-sarnia pipeline, which is bringing imported crude from Montreal to the Ontario market, may be reversed.
“So you’ll probably see some of those adjustments happen.”
Corey said economics explains why Canada will continue to be a major exporter of unrefined bitumen.
He noted that Canada consumes about 650 million barrels of oil a year, yet has 174 billion barrels of reserves, 170 billion of which is from the oilsands. These reserves could soar to a staggering 300 billion.
“Most people don’t understand just how huge the oilsands actually are,” Corey said. “So it will be exported. It’s way bigger than anything that Canadians could ever use for the next couple hundred of years.”
Corey said it’s hard to argue for new refineries in Canada when each one costs $5 billion to $15 billion, and the industry is operating at only 80 to 83 per cent capacity.
There is also plenty of excess capacity in U.S. refineries, he noted.
He said North American refineries face intense competition from new “super refineries” in China and India.
“It is understandable that with increasing production from Alberta’s oilsands, there is an expectation, at least in some circles, that Canada’s refining capacity should also grow. However, the economic truths of supply and demand in the North American context often get lost or ignored in the debate in the realities of the declining North American demand, excess refining capacity, and the stiff competition from overseas refiners often gets overlooked.”
Shipping refined products via pipeline is also more complex because, rather than just sending crude, refineries must send a variety of products including gasoline, diesel and jet fuel.