Oil Sands Truth: Shut Down the Tar Sands

Conoco to use Keystone and Alberta Clipper to transport Tar Sands Crude to the Gulf

Conoco has big plans for oil sands
Third-largest U.S. oil firm is willing to pay billions to pump Alberta crude to Gulf Coast refineries
July 20, 2007

ConocoPhillips Co. is prepared to spend billions of dollars on pipelines and refinery upgrades to allow it to process oil sands crude throughout its refinery network stretching to the U.S. Gulf Coast, company chairman Jim Mulva said yesterday.

The extension of the pipeline network into the Gulf Coast would open a vast new market for Canadian oil sands producers and help ensure that oil sands projects that have already been proposed could go ahead.

The industry is worried, however, that federal and local governments on both sides of the border could create a regulatory logjam that would stall the planned investments.

Mr. Mulva said the rapid development of the Canadian oil sands is a key goal as the U.S. seeks to reduce its dependency on imported oil from outside North America, while still meeting rising gasoline demand at home.

In a telephone news conference from Washington, Mr. Mulva said Conoco, the third-largest U.S. oil company, sees few hurdles in the way of the massive expansion of oil sands production, and is upgrading its fleet of refineries to handle the tarry crude.

Last year, Houston-based Conoco and Calgary's EnCana Corp. joined forces to boost production in the oil sands, with Conoco gaining a 50-per-cent stake in oil sands projects such as Surmont and Christina Lake, while the Canadian company gained a 50-per-cent share in two of Conoco's refineries.

The two companies are already pouring in some $5.3-billion (U.S.) to upgrade the Wood River refinery near St. Louis, and the Borger facility in northwest Texas to handle oil sands production.

Now, Mr. Mulva said the company is considering extending pipelines and upgrading three refineries along the Gulf Coast to handle Canadian crude. Those facilities currently rely on declining U.S. production and imports from outside North America.

"We're considering projects that we can do [to upgrade capacity] to the extent that we need to handle this type of oil at our Gulf Coast refineries," Mr. Mulva said, adding that the Canadian crude would replace dwindling U.S. production there.

U.S.-based energy economist James Williams said access to the Gulf Coast would help ensure robust markets for vastly expanded oil sands production, which could reach 3.5 million barrels a day by 2020.

"There's no downside for Canada," he said. Not only would it provide a new market for production, but, in doing so, it would reduce the price differential that now exists between oil sands crude output and the benchmark light U.S.

The prospect of an expansion of the U.S. market for Canadian crude comes just a week after Chinese oil officials pulled the plug on their involvement in the Gateway pipeline project that would deliver oil sands crude to the West Coast for delivery to Asian markets.

Industry insiders have long acknowledged that the Gateway pipeline project faced huge hurdles, because Alberta producers have shown a clear preference for the U.S. market, and the route would have required right-of-way deals with scores of native bands.

Mr. Mulva said Conoco and EnCana expect to eventually produce 400,000 barrels a day of crude from two major oil sands projects, and will be looking to book pipeline space now. He said the industry as a whole will need additional pipeline capacity for roughly one million barrels within about five years.

TransCanada Corp. is planning to build the Keystone pipeline, which would connect Alberta with southern Illinois, near the Wood River refinery, with an extension into Oklahoma. It would have a capacity of 435,000 barrels a day in the initial stage to open in 2009, and 590,000 barrels a day for the final phase, which would be completed in 2011.

Enbridge Inc. is proceeding with the Alberta Clipper line that would carry 450,000 barrels a day into the U.S. Midwest. New pipeline construction would be required to ship the Canadian crude to the Gulf Coast, which is the refining hub of the U.S.

Mr. Mulva said the industry will need accelerated regulatory reviews and permits to get the pipeline built in time to meet the market demand.

David MacInnis, president of the Canadian Energy Pipeline Association, said the expansion of the network to the Gulf Coast would be a major boon to Alberta oil sands producers.

But he said the regulatory hurdles remain significant and could delay projects if the various jurisdictions don't work together to expedite the reviews.

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