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Increasing Canadian crude volumes into USGC refining market

Increasing Canadian crude volumes into USGC refining market

OTTAWA: Supplies of Canadian oil sands heavy crude are increasingly being refined on the US Gulf Coast (USGC) and could top 1.2 million bpd – a full one-third of the region’s heavy oil refining market – by 2020, says a new report by business information provider IHS Markit. The 800 000 bpd estimate for current runs of Canadian crude in the USGC is already significantly higher than many other estimates. IHS Markit believes that Canadian heavy oil imports may be simply ‘stopping off’ at Cushing, Oklahoma, US in the US Midwest – where they have already exceeded demand in that market – before being rerouted to the Gulf coast. Due to the way imports are often tracked, these imports would be counted as having been delivered into Cushing rather than to their final destination.

“The US Gulf Coast is the most logistically approximate and technically suited to receive increasing volumes of heavy oil from Canada,” said Kevin Birn, Executive Director – IHS Markit, who heads the Oil Sands Dialogue. “With supply overtaking demand in the US Midwest and traditional sources of offshore heavy supply to the Gulf Coast in decline, Canadian supply has become an obvious and attractive alternative.”

The IHS Markit forecast assumes the completion of all the country’s remaining long-distance export pipelines. If those projects were delayed or Canadian or other heavy oil supply is more prolific than anticipated, Canada may have to compete more aggressively for market share in the US – something it has not yet had to do.

“Although Canadian imports are of similar quality as Latin American crudes, they are not identical. There is a point when more extensive modifications will be required to better tailor facilities to accommodate greater volumes of the Canadian heavy crude,” said Birn. “In a situation where the level of competition is high, Canadian crude may have to adjust price to incentivise refiners to make additional modifications and/or displace greater quantities of offshore imports.”