Canada’s Natural Resources Minister Joe Oliver, in waging his single-minded battle in support of Keystone XL, has assured the United States that the pipeline is vital to its dream of oil independence and a better bet than imports from Venezuela.
Continuing his crusade across Canada, followed by more stops in Washington, D.C., and New York, Oliver pressed home his case that Canada is committed to responsible energy development and building on its record as a reliable oil supplier to the U.S.
“We feel very strongly that this is a project in the interest of both of our countries,” he told business leaders and academics in Calgary.
“From the U.S. perspective the advantages are very clear. By displacing Venezuela oil (with crude from the Alberta oil sands and the Bakken) there will be greater economic security ... jobs created ... and revenues to a variety of states,” he said.
“There is significant advantage ... in terms of crude going to U.S. refineries in terms of enhancement of national security.”
Oliver argued that Keystone crude will displace expensive Brent-priced crude coming into the U.S. Gulf Coast refinery region.
Although the price might be closer to West Texas Intermediate, it will be lower than Brent which should translate into cheaper prices at gasoline pumps, he suggested.
Better service
Oliver said the U.S. can expect better service than it has received from Venezuela that currently meets a large chunk of the Gulf Coast’s demand.
“Venezuela may be a major supplier of heavy crude to the U.S., but it has also threatened to cut supplies five times in as many years,” he said.
“That’s not a reliable partner. That’s not a stable source of oil. And that’s not how Canada will ever treat the United States.”
The latest data from the U.S. Energy Information Administration shows the U.S. imported 2.5 million barrels per day from Canada and 709,000 bpd from Venezuela.
While commenting that the Canadian government remains “cautiously optimistic” about the final decision expected this summer on Keystone XL, Oliver also added some edge to his comments, noting that Canada faces a “pivotal moment” in the future of its oil and natural gas sector and is not prepared to pin all of his hopes on Keystone XL.
He said almost 90 percent of global urban growth over the next 25 years will occur in non-Organization of Economic Co-operation and Development countries, largely in Asia.
“Canada can play a critical role in meeting that demand and the good news is that (Asians) are ready and waiting for us. But time is of the essence and we have to get on with it.
“There is tremendous benefits for us in finding new markets as our oil producers while exporting to the U.S. are currently losing C$20 billion each year due to unfavorable price differentials. For Asian buyers, procuring from Canada will be in line with their efforts to diversify sources of energy,” he said.
Too soon for independence
Rilwanu Lukman, former secretary-general of the Organization of Petroleum Exporting Countries, told the same Calgary conference said it is far too soon for the U.S. to declare it will no longer need offshore crude and could eventually become a net exporter as tight volumes grow.
“The so-called oil from shale is still not fully studied,” he said. “We really don’t know to what extent these reserves will be producible and at what cost.
“Because it is local, governments go out of their way to make it viable, in spite of it not being economic, compared to the Middle East or elsewhere, where you punch a hole and its gushes out,” he told the Financial Post.
Lukman said that if the U.S. lowers its import demand, OPEC producers such as Nigeria will adjust and seek new markets in Asia.
He said that is already taking place, with crude finding its way to China, Japan and India, regardless of high transportation costs.
New pipelines unavoidable
As an aside, Oliver said that although the use of rail transport has helped in recent weeks to narrow the price gap between Canadian heavy oil being delivered to U.S. refineries and global benchmarks, the construction is new pipelines is unavoidable.
“Rail has been a great supplement,” he said.”It’s been important, but it cannot replace over the longer term, the volume of oil and natural gas that has to be moved.
Oliver also found an ally in Mark Carney, who is soon to leave his job a governor of the Bank of Canada to fill the same post with the Bank of England.
He said the combination of wide differentials between Western Canada Select and West Texas Intermediate and inadequate pipeline capacity is starting to affect investment in Canada’s energy sector.
“We think we are starting to see the implications of that. And that is tempering an otherwise robust investment profile.”
Carney said that “despite all the elements of shale oil and shale gas in the United States, which is bringing tremendous economic benefits, (for North America) to be truly energy independent requires changes to energy infrastructure cross-border and east-west in Canada. We’re not picking exact projects as favorites. But the big picture is that it is going to take an integrated strategy on each side of the border.”
