OIL & GAS PIPELINES

Canadian oil producers supply oil to Canadian markets and export to the U.S.

There are 17 refineries in Canada that have a collective crude oil refining capacity of 2.0 million barrels per day (b/d).

Canada is currently the largest supplier of oil to the U.S. In 2019, Canada exported more than 3.7 million b/d of oil to the U.S. – less than 1% of Canadian exports were delivered to other countries.

In addition to direct imports from the United States, much of the domestic Canadian crude processed in Eastern Canadian refineries is shipped from Western Canada on pipeline systems that pass through the United States before entering Eastern Canada. Altogether, it is estimated that more than 75% of all oil refined in Eastern Canada comes from or passes through the United States.

Due to constraints on pipeline systems out of Western Canada, oil importers have increasingly turned to crude-by-rail delivery methods, which have gradually increased since 2012, reaching approximately 300,000 b/d in 2019. Shipping crude by rail is typically very expensive, and exporters must absorb sharp discounts on Canadian crude oil to offset the higher shipping costs.

In 2019, more than half of all Canadian crude-by-rail imports consisted of discounted heavy oil from Western Canada moving to refineries in the U.S. Gulf Coast region.

After entering the United States, imported Canadian crude oil may be transloaded onto other transportation modes for ultimate delivery to destination refineries. For example, some Canadian crude oil imported into the U.S. Midwest via cross-border pipeline and rail routes is transloaded onto barges on the Mississippi River for ultimate delivery to refineries in the U.S. Gulf Coast region

enlarge map here

Note that the map does not show any Canadian pipelines going coast to coast, either directly or through Canada based intermediaries.  Most pipelines go through the USA.  Now we have a foreign political power influencing our national energy.

And these USA political entities have disrupted our energy resources several times in the recent past.

Keystone XL Pipeline
Keystone XL pipeline extension which was partially completed before President Biden revoked a key permit, effectively stopping the pipeline.  The XL pipeline was to have delivered Canadian crude to the U.S. Gulf Coast region.  The U.S. Gulf Coast region delivers pricing almost comparable to the benchmarked WTI.  Currently most oil goes to the Central states that discounts our oil around $20 +/- bbl from WTI.

Enbridge Line 3
Enbridge’s Line 3 pipeline aims to replace the existing 34-inch diameter pipe running from outside of Edmonton to Superior, Wisconsin, with a 36-inch pipe along most of the route to nearly double its capacity to 760,000 barrels per day.

Significant construction work was put off until 2021 when a Minnesota pollution regulator said in June it would hold public hearings on key water permits for the Enbridge project. The contested case hearing was requested by environmental groups and two Indigenous Nations. 

In an opinion released in October, the judge who presided over the hearing said the groups challenging the permits had not proven the project would cause permanent harm to water quality and wetlands. 

State of Michigan
The State of Michigan has pulled a 1956 easement permit for the line 5 oil pipeline that goes under the Straits of Mackinac. Enbridge has ignored the order and continues to use the pipeline as well as fight in court. The state has filed different legal suits since 2019 to try and stop the pipeline.

Canadawide Pipeline Proposal
In 2017, Energy East, a subsidiary of Transcanada (now TC Energy) had promoted a proposal to extend oil sands and refineries in Ontario, Quebec and New Brunswick. The company had anticipated that some of the bitumen shipped from the oil sands would be loaded onto tankers at ports in eastern Canada for shipment to the United States.

In addition to facing opposition from advocacy groups, the company was put off by an expanded review process, then recently introduced by Canada’s regulator, as well as by the economics of building a pipeline in what seems to be an era of extended, low oil prices. (2017 oil price approximately $51/bbl)

The project, was estimated to cost 15.7 billion Canadian dollars (almost USD12.5 billion).

Although the pipeline made economic sense, said Tim Pickering, chief investment officer at Auspice Capital Advisors in Calgary, “it had regulatory layers put on it.”

About 200 communities along the route supported the pipeline. But other places, particularly in Quebec, firmly opposed the project.

Heavy, High-Sulfur Crude Oils
All else being equal, refiners will typically value heavy, high-sulfur crude oils less than lighter, lower sulfur grades because they produce higher yields of low-value products, including heavy products such as petroleum coke, asphalt, and residual fuel oil, and lower yields of higher value products, such as gasoline, diesel fuel, and jet fuel.

Because of this, heavy, highsulfur crude grades are often priced at a discount to light, low-sulfur grades, creating an opportunity for refiners to reduce crude costs and increase refining margins (the difference between product sales and crude costs) if they have the ability to process heavier crude oils and upgrade the lower value product streams (primarily heavy gasoil and residual hydrocarbon) into higher value products.

Since 2011, the cost of Canadian heavy crude oil delivered to Cushing, OK, has ranged from $8 to $20 per barrel below the U.S. benchmark WTI crude oil spot price on an annual basis.

Meanwhile, over the past decade, U.S. imports of Canadian heavy oil—primarily from the Alberta oil sands—increased 1.6 million b/d (from about 1 million b/d to more than 2.6 million b/d), increasing from 25% of total U.S. heavy crude oil supply in 2010 to nearly 60% by the end of 2019. Canadian heavy imports were down slightly in 2019 compared to 2018, due in large part to the implementation of production limits by the Canadian government starting in January 2019.

The reliance of U.S. refiners on Canadian heavy oil supply is underscored by the limited availability of supply alternatives. According to data from Stratas Advisors, the global heavy oil market totaled 11.4 million b/d in 2019. 12 This means that U.S. refinery demand at approximately 4.6 million b/d represented approximately 40% of the global heavy oil market, and Canadian production at 3.0 million b/d represented more than one-quarter of the total market.

Furthermore, the global heavy oil market has grown more competitive as oil production declined approximately 7% to 8% from 2016 to 2019. The inability of U.S. refiners to replace Venezuelan heavy oil barrels following the implementation of sanctions in 2019 is an indicator of the market’s competitiveness and the difficulty of finding alternative heavy oil supply sources. Note that US talks have resumed with Venezuela in 2022, so Canada may be competing in the same market for oil exports.

According to U.S. Census Bureau data, the average delivered price of heavy Canadian crude oil to the Chicago Customs District was $45.90 per barrel in December 2019. In that same month, ICF estimated that buying one barrel of WTS crude oil in Midland, TX, and delivering it by pipeline to the Chicago area would cost approximately $59.54 per barrel. This yields a gross per-barrel cost savings at the refinery gate of $13.64 for purchasing heavy Canadian crude oil.

 However, because WTS has a greater yield of higher refining value products, ICF subtracted $4.21 per barrel from the estimated savings to yield a net per-barrel refinery margin impact of $9.43.

The total refinery margin impact is then calculated by multiplying this per-barrel impact by the total barrels of heavy Canadian crude oil processed over the month—3.1 million barrels for a refinery importing 100,000 b/d. This yields a total refinery margin impact of approximately $29.2 million for the refinery in the month. 

Pipelines & Refineries, Western Canada

Pipelines & Refineries, Eastern Canada

REFINERIES & UPGRADERS

LocationYear Constructed Operator DetailsTypeCapacity (in 1000s)
Burnaby, BC1936Parkland Fuel (formerly Chevron)Refinery55
Prince George, BC1967HuskyRefinery12
Redwater, AB2018Sturgeon (Redwater)Refinery40
Fort McMurraySyncrudeUpgrader465
Fort McMurraySuncorUpgrader438
Fort McMurrayCNRL (Horizon)Upgrader135
Fort McMurrayCNOC Nexen (Long Lake)Upgrader72
Scotford, ABShellUpgrader240
Edmonton, AB1974ImperialRefinery191
Edmonton, AB1951SuncorRefinery142
Strathcona, AB1984Shell ScotfordRefinery110
Lloydminster, SK1947Husky (Asphalt)Refinery29
Loydminster, SK1947Husky (Diesel)Refinery82
Regina, SK1935FCL Co-OpRefinery135
Moose Jaw, SK1934Gibson EnergyRefinery19
Sarnia, ON1897ImperialRefinery119
St Clair, On1952Shell (Counna)Refinery73
Sarnia, On1953SuncorRefinery85
Mississauga, ON1943Hollyfrontier (Clarkson)Refinery15
Nanticoke, ON1978ImperialRefinery113
Montreal, QC1955SuncorRefinery137
Quebec City, QC1971Valero Levis (Jean-Gaulin Refinery)Refinery265
Saint John, NF1960IrvingRefinery300

All import data cited is provided by the Canadian International Merchandise Trade database.
Date of access: 11 March 2022.

Enbridge Mainline transports both domestic and U.S. crude oil into Sarnia, Ontario, for use in Ontario and Quebec refineries. The Mainline delivered about 50 000 b/d less U.S. oil into Sarnia in 2021, while domestic oil deliveries into Sarnia were nearly 70 000 b/d higher, as compared to 2020.

Crude oil demand provided by Statistics Canada Table 25-10-0063-01: Supply and Disposition of Crude Oil and Equivalent. Date of access: 16 March 2022.

Note that all dollar amounts discussed in this publication are in Canadian dollars, while crude oil prices are typically quoted in media in U.S. dollars.

Much of Alberta’s RPP imports are transported along two CER-regulated pipelines, Southern Lights and Cochin.

Naphtha, pentanes plus, and condensate are commonly used to dilute bitumen and heavy oil.

There has been previous attempts to have a coast to coast pipeline.  TC Energy project tried to initiate the Energy East pipeline (approximately 2015 – 2017), was intended to carry upward of 850,000 barrels of oil each day from Alberta to refineries in Quebec and New Brunswick. This was an all Canadian pipeline with no US rights of way.  A New Canada proposes essentially, the same project. This would allow Canada to use domestic oil, rather than importing what we already have.   Here is their PDF that details analysis of the project, including alternate scenarios and costs to the individual refineries as well as CO2 reductions.

References:

https://www.oilsandsmagazine.com/

https://www.capp.ca/energy/world-energy-needs/

https://ceri.ca/assets/files/Study_167_Full_Report.pdf

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