West Coast oilsands exports at record
Shipments open new markets for Alberta crude
By Shaun Polczer, Calgary Herald
July 9, 2009
CALGARY - Exports of oilsands via tanker ships off the West Coast hit an all-time high this spring, the head of the only pipeline company to cross the Rocky Mountains said in Calgary Wednesday.
Ian Anderson, the CEO of Kinder Morgan Canada, said his company off-loaded a record 134,000 barrels per day (bpd) of heavy oil and oilsands production though the Port of Vancouver in March and expects to move an average of 60,000 bpd through the balance of the year.
It was the first time tanker shipments have exceeded the 100,000 bpd threshold, a feat that was repeated in May. Anderson said the cargoes, although still relatively small, mark a sea change away from thinking of Canada as a single-market player that ships virtually all of its production to the United States.
"No doubt. It goes somewhat unknown that we're moving barrels off the tidewater," he told reporters. "We're moving to develop markets today and those movements are happening in increasing numbers. We're seeing record movements off the dock this year."
Kinder Morgan operates the Trans-Mountain pipeline, which pumps about 300,000 bpd from Alberta to the Lower Mainland and is the only pipeline to cross the Canadian portion of the Continental Divide. The company plans to expand capacity to about 1.1 million bpd, driven by production increases from the Fort McMurray area.
Although the company has no determination of where the oil is shipped to, Anderson said by way of anecdote that cargoes have reached markets in South America in addition to Asia and the United States.
Like rival pipeline operator Enbridge Inc., Kinder is considering plans to build a dedicated heavy oil line to Kitimat, B. C., to potentially open markets in Asia, especially China. But unlike Enbridge, which recently revived the Gateway project after anonymous producers ponied up $100 million to obtain regulatory approvals, Anderson said Kinder has not received any firm commercial commitments to build the line.
Nonetheless, he said the tanker shipments to date validate producer interest to open new markets.
By contrast, TransCanada Corp. is pinning its hopes exclusively on the U. S. Gulf Coast, where Canadian crudes comprise only two per cent of the market. TransCanada is building the Keystone pipeline, a complex web of new and existing pipes that will take one million barrels of Canadian oilsands output to southern Texas and Louisiana, which is home to the largest refining complex on Earth.
Russ Girling, TransCanada's president of pipelines, suggested the parties backing projects like Gateway are hoping to use the threat of exports to countries such as China as leverage to obtain better pricing terms from U. S. refiners.
While he agreed a secondary outlet would provide much needed negotiating leverage for Canadian producers, security of supply concerns and a long-stated goal of making North America self-sufficient in oil would eventually trump the desire to expand offshore markets. One way to do that would be to support major onshore projects such as Keystone.
"Oil is a very strategic resource in North America," he said. "The U. S. government, from their perspective, views Canada as a domestic supply and would like to see that oil stay on the continent, if possible. "
Jon Langille, Canadian Natural Resources' vice-chairman, said the U. S. Gulf Coast is his company's preferred destination for its heavy oil and synthetic crude from the newly commissioned Horizon oilsands mine. That's why Canadian Natural has long prepared "cocktails" of heavy oil and bitumen blended with lighter oils to tailor products suited for specific American refineries.
He agreed pipelines such as Keystone are opening up opportunities for Canadian producers to compete against oil from countries like Mexico and Venezuela and spoke of a permanent structural shift in heavy oil markets.
"I think fundamentally we've had a bit of a step change if we can get our oil down to the Gulf Coast. The more oil we can get pushed down to the Gulf Coast, ultimately then our overall differential (or discount to light oil) will decrease just because of the marketplace we're selling in."
The prospect of exports to China has increased in proportion to the country's growing oil consumption, which is second only to the United States. The Asian giant's state oil companies have been scouring the globe to buy billions of dollars worth of assets and production, but have so far refrained from making major investments in North America.
Wenran Jiang, the research chairman for the University of Alberta's China Institute, said China has made major acquisitions of Canadian companies such as Petro-Kazakhstan and, more recently, the $8.27-billion purchase of Addax Petroleum. However, he noted a reluctance on the part of the Chinese authorities to do deals in Canada itself. China will hold off on major investments in Canada until Canadian producers take concrete steps to provide long-term stable supplies, he said.
"What that says is for producers accustomed to an integrated North American market, it is still the best way to push off what they produce. Those (plans for West Coast pipelines) remain very conceptualized kind of recommendations."
spolczer@theherald.canwest.com
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