Oil flows at record pace without Keystone
Canada has already replaced crude exports to U.S. from less reliable nations
CALGARY— Whether Keystone XL ever gets built, the record amount of Canadian oil flowing into the U.S. shows that some of the pipeline project’s original goals are already being met. The Canadian government and pipeline builder TransCanada Corp. have long argued the cross-border pipeline would bolster U.S. energy security by displacing crude from less reliable nations such as Venezuela. That’s happening now.
While Keystone XL remains at the centre of a bitter political conflict in the U.S., Canadian producers are sending more crude from Alberta’s oilsands across the border by train and other, expanded pipeline networks.
Canada now supplies 43 per cent of U.S. oil imports, up from 15 per cent a decade ago, largely at the expense of Mexico and Venezuela.
“The market finds a way,” said Judith Dwarkin, chief energy economist at ITG Investment Research in Calgary. Output from oilsands projects will continue to rise and “it’s going to find other ways to move, be that by rail, dog sled, whatever.”
U.S. Republicans this week are trying to force Keystone XL’s approval, with Republican North Dakota Sen- ator John Hoeven introducing bipartisan legislation to authorize the project.
That would circumvent President Barack Obama, who has criticized the project, in part because he argues it may help Canadian producers deliver crude to buyers outside North America.
Calgary-based TransCanada has said the $8 billion (U.S.) pipeline will supply refineries in Louisiana and Texas.
The White House pledged that Obama would veto the bill.
With Keystone XL stuck in a U.S. review since 2008, pipeline reversals and expansions have given Canadian supplies an advantage over heavy crude from other countries that have traditionally fed refineries on the U.S. Gulf Coast.
For instance, a second pipe built alongside the Seaway conduit from Cushing, Okla., to Houston, Texas, will almost double the amount of heavy Canadian crude entering the region starting this month, according to ARC Financial Corp. in Calgary.
Exports by rail have more than tripled to a record 182,000 barrels a day in the third quarter, from about 57,000 barrels a day two years earlier, according to Canada’s National Energy Board.
Canada is the top crude supplier to the U.S. and the only exporter that’s posted significant gains in deliveries in the past decade. U.S. imports of Canadian crude have risen 80 per cent to about 3 million barrels a day in October from a decade earlier, the latest U.S. Energy Department data shows. The September average of 3.1 million barrels a day was a record high.
Over the same period, supplies from Venezuela fell by about 53 per cent. Volumes from Mexico slipped 57 per cent, though that may eventually climb as the country is opening its energy industry to foreign investment. TransCanada and its customers envisioned Keystone XL as a way to connect booming production in the oilsands to Gulf Coast refineries that were already confronting declining imports from Mexico and Venezuela. The project was proposed in 2008 and originally expected to begin carrying crude in 2012.
Obama first rejected the pipeline in 2012 over opposition to its path in Nebraska. TransCanada then split up the project and built the southern portion, refiling for approval of the northern leg with an alternate route. That portion still requires U.S. consent because it crosses the border.
The now 1,897-kilometre Keystone XL line, starting in Hardisty, Alta., would transport 830,000 barrels a day from Canada and Bakken shale fields in North Dakota and Montana to an existing network in Steele City, Neb., that’s connected to pipelines feeding the Gulf Coast.
With Keystone XL evolving into a political proxy for debates over energy policy, climate change and jobs, producers increasingly turned to rail. Even with the rail and pipeline workarounds, oilsands developers need Keystone XL, ITG’s Dwarkin said. A battle between Saudi Arabia and North American producers for market share that has led to a plunge in crude prices won’t affect oilsands output growth over the next couple of years, she said.
Due to investments already committed, oilsands production is poised to rise 36 per cent to at least 2.6 million barrels a day by 2017, Peters & Co., a Calgary-based investment bank, said in a November forecast. Projects now under construction will require 1 million barrels a day of new pipeline space, said Chris Cox, an analyst at Raymond James Ltd. in Calgary.
“What you should expect this year is that all incremental heavy oil barrels are effectively going to be transported by rail,” Cox said.
TransCanada says its customers remain supportive of Keystone XL and that the pipeline’s crude will be refined in the U.S., like every barrel already transported on the company’s existing cross-border oil line from Alberta. The message hasn’t changed. “In fact, every barrel of Canadian and American oil transported by Keystone XL that replaces imports from the Middle East and Venezuela improves U.S. and North American energy independence,” Russ Girling, TransCanada’s CEO, said in a statement this week about the legislation introduced in Congress.