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Shoring up Energy East’s case Energy East draws added strength from 2 of strongest arguments in favor of pipeline — imports of foreign crude, public sentiment GARY PARK For Petroleum News
The wildly unpredictable nature of global crude markets and the inability of Canadian producers to compete on their own turf combined with growing public support provide ammunition for proponents of TransCanada’s Energy East pipeline.
In what seems to be a dramatic swing of the pendulum, imports into Canada rose by almost 100,000 barrels per day last year to 736,000 bpd, with most of the gain coming from United States shipments of 460,000 bpd, at least 100,000 bpd above any previous shipments.
Statistics released by the National Energy Board show imports surged by about 16 percent in 2015, with the United States accounting for 62.5 percent, led by marine imports from Texas, although deliveries from inland states also grew significantly.
The federal regulator partly attributed the reversal of a three-year downward trend to the completion of rail offloading terminals on Canada’s Atlantic Coast and the reversal of the Enbridge Line 9A and Line 9B pipelines, opening a route for 300,000 bpd of crudes to reach refineries in Ontario and Quebec.
What wasn’t expected was the dominance of the United States in a field of eight other shippers into Canada, with Saudi Arabia claiming an 11.4 percent share, while Nigeria tripled its contribution to 5.2 percent.
Imports from Norway and Algeria increased slightly, with the rest divided among the United Kingdom, Kazakhstan, Azerbaijan, Angola and Norway.
Of the other imports sources that have played key roles over several years, Mexico and Iraq disappeared completely.
Argument for Energy East But the dependence on any foreign crude has been the strongest argument for Energy East, which is designed to transport 1.1 million bpd from Western Canada to Quebec and New Brunswick refineries, partly by converting an underutilized TransCanada natural gas pipeline, and to open up Canada’s first offshore markets in Europe and possibly the Middle East and Asia.
(On the export side, the NEB reported that Canada shipped an average 3 million bpd - including 2.16 million bpd of heavy crude - to five PADD markets in the United States last year and 25,549 bpd to unspecified offshore markets.)
Refinery access For now, the Quebec and New Brunswick refineries are ready to seize the chance to access a wider range of supply options, notably cheap U.S. crude.
Industry sources said Irving Oil’s 300,000 bpd plant at Saint John, New Brunswick, is sourcing primarily global crude types, receiving only minor batches of synthetic crude from Alberta.
Valero Energy said its 265,000 bpd Quebec refinery obtains its feedstock from the “most economical” sources, while Suncor Energy, which has a 160,000 bpd plant in Quebec, is believed to take advantage of its own oil sands crude production in Alberta by using Enbridge’s newly opened 300,000 bpd Line 9.
Jason Parent, a consultant with Ontario-based Kent Group, said the Eastern Canadian refineries tend to rely on lighter crude feedstock, of which there is an ”abundance” in the United States.
But he said that if suitable crude was available on Energy East “they would take advantage of that.”
If not, then Canadian producers could turn to export markets, Parent said.
Martin King, an analyst at First Energy Capital, told the Globe and Mail that the three plants would still take the cheapest crude regardless of where it was based.
He said U.S. producers have probably saturated Canada’s East Coast, while the rise in import volumes does not undermine the case for sending more Western Canadian crude to the refineries because the market would dictate a competitive price.
Shale volume decline However long the United States remains a supplier of Canada’s needs, the assumption is that sooner rather than later those shale oil volumes will go into decline and, unless Energy East is either under construction or in operation, the refiners will go back to their reliance on crudes from the Middle East, the North Sea and Africa.
While the prospects of eventually deposing Canada’s offshore suppliers gets debated, an online poll by the Angus Reid Institute showed 64 percent of Canadians support Energy East, although that robust overall endorsement camouflaged extreme geographical stances.
The pipeline gained 87 percent support in Alberta and 78 percent in Saskatchewan - the two provinces whose oil only with U.S. Bakken oil is earmarked to fill the system - sliding to 48 percent in Quebec, where the environmental opposition is at its strongest.
When asked whether the Canadian government should retain its legal right to make the final decision on pipelines, 72 percent of respondents in Alberta and 79 percent in Saskatchewan agreed with that authority.
The reverse view gained 61 percent backing in British Columbia, where Enbridge’s Northern Gateway and Kinder Morgan’s Trans Mountain expansion have encountered fierce resistance at public hearings and 59 percent in Quebec.
Nationally, 58 percent believe Energy East will eventually be built, even if regulatory decisions are delayed or stalled.
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