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Canadian oil producers face squeeze
Gary Park For Petroleum News
Canada is under pressure from oil producers as far afield as Brazil and Colombia to speed up its approval of crude oil deliveries from Alberta to the Pacific Coast or lose the race to Asia, says a report by Scotiabank.
“Changing oil market dynamics highlight the increasing commercial risk for Western Canada’s oil patch of relying on one major export market — the United States — and the critical need to build additional pipeline and rail capacity to the British Columbia coast,” wrote commodities analyst Pat Mohr.
She forecast that on a global basis, petroleum prices and demand will be stable over the next five years until flows from North and South America dramatically change that picture.
Mohr said emerging plans to ship Western Canadian crude to eastern Canada and the United States by reversing Enbridge’s pipeline which imports crude into Ontario and Quebec or converting part of TransCanada’s main natural gas pipeline, would offer important options.
Not all agree But not all Canadian producers agree with Mohr’s thesis that U.S. Gulf Coast pricing would weaken against competition from South American heavy crude sources over the next five years.
Byron Lutes, chief executive officer of Southern Pacific Resource, is confident future prices will support his company’s plans to ship 12,000 barrels per day from its new STP-McKay thermal oil sands project to the Gulf Coast by truck, rail and barge.
He said it would be hard to imagine Gulf Coast prices, especially for heavy crude, taking a significant drop against Brent-priced crude.
Mohr said in an earlier report that Western Canadian heavy producers lost out on C$5.8 billion in revenues over the first half of 2012 because they were unable to access higher-priced markets.
Her report said that even if Keystone XL proceeds and delivers oil sands crude to Midwest and Texas refineries, it faces competition from growing sources of heavy crude in South America, noting that Brazil is expected to grow from 2.9 million barrels per day by 2017 from 2.2 million bpd.
Martin King, a commodities analyst with FirstEnergy Capital, doubts Colombia and Brazil will greatly influence competition in the Gulf Coast because of the declining volumes from Mexico and Venezuela.
The Canadian Association of Petroleum Producers expects light oil will go east and heavy oil will move to the Gulf Coast or West Coast for delivery to California or Asia, where access is vital.
Scotiabank forecasts that the greatest demand growth will come from China (where consumption is counted on to grow to 11.3 million bpd in 2017 from 9.5 million bpd this year), India and the rest of emerging Asia.
In the U.S. it said consumption of crude is unlikely to rise from this year’s 18.7 million bpd — down 2.1 million bpd since 2005 — as fuel efficiency standards rise and there is some shift to natural gas.
Mohr forecast that U.S. oil and liquids production will grow to 11.4 million bpd in 2017 from 8.95 million bpd this year, as the U.S., powered by plays such as the Bakken, accounts for 75 percent of the growth in supply of non0OPEC countries over the next five years.
She said Canadian output will add 1.1 million bpd to reach 4.9 million bpd, with the oil sands contributing 2.6 million bpd, an increase of 900,000 bpd.
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