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Canada opens door to India Husky Energy sells million barrels of Atlantic crude to India, paving way for possible new market, dangling alternative to US, Asia Gary Park For Petroleum News
Husky Energy has demonstrated the potential benefits of TransCanada’s proposed Energy East pipeline project by establishing that a route to the booming Indian market for Canadian crude is possible.
Although only one small step for Western Canada’s landlocked producers, it does convey a low-key message that Canada is not limited to finding buyers for its crude in the United States.
The recently invigorated Husky under the leadership of Asim Ghosh and the ownership control of Hong Kong billionaire Li Ka-shing has announced that one million barrels of crude from offshore Newfoundland’s White Rose field was sold to state-owned Indian Oil Corp. in November for export to the subcontinent’s refineries.
That trail-blazing deal was made possible by the Indian’s government’s decision to approve the use of crude from Atlantic Canada in its refineries.
It gives even greater impetus to the Energy East plan to deliver 1.1 million barrels per day from the Alberta oil sands and Saskatchewan Bakken to refineries in Ontario, Quebec and New Brunswick and possibly establish tanker terminals in Quebec and New Brunswick to export crude to Europe and India.
Until now, India has barely registered a blip on Canada’s export radar, with shipments beyond the United States accounting for only 3.9 percent in 2011 and 2.9 percent in 2012. Because those volumes represent commercially sensitive transactions, the National Energy Board does not disclose the destinations.
Peter Sutherland, president of the Canada-India Business Council, described the shipment as a far-sighted move and said he hopes the Husky shipment is a “forerunner of things to come.”
Issue landlocked crudes Phil Skolnick, an analyst with Canaccord Genuity, rated the test sale as a positive development for landlocked Western Canadian crudes, whose producers have been stalled in their attempts to open new routes to the United States and Asia.
He suggested that if Canadian producers — who face no legal impediments to exporting beyond North America — can establish new markets, the door might even be opened for U.S. crude in Canada.
Ghosh, Husky’s chief executive officer, said the Indian sale could “open up a potentially very large market.”
The future of sales to India hinges on a bidding process that currently sees West African crude “undercutting the market by just a few cents,” Ghosh told a webcast conference call with analysts.
He said it would not require a very large price difference “to open up a huge market for us in India and we’re taking the appropriate steps to make ourselves accessible to that market.”
India could be ‘cost competitive’ Ghosh said that if Energy East goes ahead, India could become a “cost competitive destination for Canadian crude.”
Chief Operating Officer Rob Peabody said the crude Husky is producing in Western Canada and Atlantic Canada is a “very robust” 34-degree API crude “that can be used to make a large suite of products.”
“The surge in ultra-light crude (in North America) is good to make gasoline and chemical products, but not a lot else,” he said.
Ghosh said the glut of North American light crude is “substantially” benefitting Husky at its Lima, Ohio, refinery, which is being repositioned at a cost of C$300 million to handle up to 40,000 barrels per day of heavy crude from Western Canada and enable the company to “move between heavy and light as the markets move.”
Husky reported it is making “good progress” in developing its three satellite extensions at White Rose and is averaging 14,000 bpd from a fifth well at North Amethyst that was brought online in the fourth quarter, while production from a deeper Hibernia formation is expected to start later this year.
The company said gas injection is planned for the current quarter at the South White Rose field and first oil is expected later this year.
Peabody confirmed that Husky and operator Statoil are committed to moving ahead “fairly quickly” with the three discoveries they have made in Newfoundland’s deepwater Flemish Pass and have contracted a rig for 18 months to drill five wells, four of them classified as delineation.
He said the initial focus will be on the Bay du Nord discovery, which the partners view as a standalone project, followed by another eight to 10 high-potential prospects.
Peabody said it is likely that decisions will be announced in 2015 on a development program.
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