Canadian oil sands producers and shippers are increasingly attracted to markets beyond the United States, according to pipeline executives, bolstered by the latest statistics that have seen China outstrip the U.S. as the world’s largest energy consumer.
A TD Newcrest-sponsored oil sands forum in Calgary got a consistent message from Ian Anderson, president of Kinder Morgan Canada, and Steve Wuori, executive vice president of Enbridge — Canadian crude producers are turning to Asia as their next major outlet.
Anderson said shippers and producers are now taking a much longer term view of future markets, while Wuori said the hunt is on for “better markets” than the U.S.
“We are hearing more and more optionality, flexibility and growing demand in Asia is going to be an outlet for producers in Canada,” Anderson said. “Those are markets they want to tap more and more into.”
Wuori said the “long game is to maneuver Canadian production to be a price maker more than a price taker.”
“The West Coast-Pacific market is becoming increasingly important.”
Regulatory phase for Northern GatewayEnbridge has entered the regulatory phase with its planned 525,000 barrel-per-day Northern Gateway pipeline, which is primarily targeted at Asia, while greater volumes from Kinder Morgan’s long-established Trans Mountain pipeline from Alberta to the Pacific coast are finding buyers in offshore markets.
In April, 143,000 bpd of Trans Mountain’s capacity of 300,000 bpd was shipped from the company’s Westridge dock in the Vancouver area, with a growing percentage destined for the U.S. Gulf Coast.
Anderson said the accelerating Chinese investment in the oil sands is evidence of China’s determination to diversify its global supply sources.
Although the current volumes of 40,000 to 60,000 bpd that are allocated to Chinese investors are not significant enough to support exports to China, Kinder Morgan believes that by 2020 it is possible that a steady stream will be headed to the world’s largest market, he said.
Anderson said an expansion for Trans Mountain is a cheap way to build shipping capacity to the West Coast “relatively quickly with the lowest risk for ourselves and for Canada and its shippers.”
He said shippers want cheap, quality pipeline space to protect the quality of some of the lighter crudes and blends and Kinder Morgan’s toll system can meet that demand.
Ultimately, there will be a second pipeline in the existing right of way from Edmonton to Vancouver, with the proposed addition expected to offer 80,000 bpd by 2014-15, assuming regulatory approval and shipper backing, Anderson said.
A later expansion phase could be completed with another one to two years, adding 320,000 bpd of capacity, he said.
Although the port of Vancouver does not have deep enough waters to accommodate the largest crude carriers, an Aframax size tanker with a draft of more than 12.5 meters successfully conducted a trial from the terminal last year, carrying a load of crude for Asian markets, Anderson disclosed.
China largest energy userThe pull of Asia is evident in an International Energy Agency report that China last year consumed 2.252 billion metric tons of oil equivalent energy from coal, oil, natural gas, hydro power and nuclear power, about 4 percent more than the U.S., ending more than a century when the U.S. was unchallenged as the world’s biggest energy user.
China is now on track to surpass Japan later this year as the world’s second largest economy and to unseat the U.S. as early as 2027.
To date this year, China’s crude oil imports have averaged 4.77 million bpd, up a staggering 30.2 percent from a year earlier, with the country’s total crude consumption at 8.71 million bpd, an increase of 18.2 percent.
The IEA estimates China’s fast-rising energy demands will need investment of US$4 trillion over the next two decades to power economic growth and avoid fuel shortages.
As Canada edges towards increased crude deliveries to Asia resistance is building among First Nations and environmentalists to the Northern Gateway project and rising shipments out of Vancouver.
Michael Ignatieff, leader of Canada’s Liberal Party, the largest opposition party in the House of Commons, has called for a ban on oil tankers in northern British Columbia, at the same time he has chastised Prime Minister Stephen Harper for waiting too long to build an economic relationship with China.
He said Northern Gateway should not be allowed to go ahead until there are guarantees that a catastrophic oil spill will not occur off the British Columbia coast.
“Everybody understands it would be a good thing for us to diversify our energy exports by adding China to the list so we’re not dependent on the United States,” Ignatieff said.
“But I’m not willing to do that and sacrifice the Pacific north coast.”
Canada’s Environment Minister Jim Prentice rejected Ignatieff’s plea for an oil tanker ban, arguing the infrastructure to carry Alberta crude to Asia can be built in an environmentally sound manner.
“Canada’s is an energy superpower,” Prentice said. “We intend on being an environmentally responsible energy superpower.”