State of Canadian Crude Oil Supply in the U.S.

January 24, 2014 By

January 11, 2012

By David Hackett


The School of Public Policy at the University of Calgary published “Catching the Brass Ring: Oil Market Diversification Potential for Canada” on December 15, 2011. The paper “…examines the nature and structure of the Canadian oil export market in the context of world prices for heavy crude oil and the potential price differential available to Canadian producers gaining access to new overseas markets. Success in this arena will allow Canada to reap incredible economic benefits. For example, the near term benefits for increased access to Gulf Coast markets after mid-continent bottlenecks are removed, are significant, representing nearly 10$ US per barrel for Canadian producers.”

Professor Michal Moore, lead author, wrote “With better access and new pipeline capacity, oil producers will see more efficient access to international markets which can add up to $131 billion to Canada’s GDP between 2016 and 2030”.

Stillwater Associates’ contribution to the paper included information on global supply and demand, and analysis of the US crude distribution system. Our analysis showed PADD 2 and PADD 4 refineries are running flat out on heavy Canadian crude oil. The analysis also showed some 2300 KBD of heavy crude imports to the Gulf Coast, although there is only about 120 KBD of Canadian supply into that market. Heavy crude margins are maximized by coking refineries and the next coker is on the Gulf Coast. The market is short of pipeline capacity from the north.

We have seen that Enbridge’s announcement to reverse Seaway contributed to the reduction of the WTI/Brent spread. Once that reversal is completed, some 150 KBD will flow through Cushing to the Gulf Coast refineries, continuing to a smaller spread and higher (relative) prices for Mid Continent producers. Keystone XL pipeline could supply another 700 KBD of Mid Continent crude (Canadian and US), displacing tanker borne imports.

After the publication of the paper, we also realized that improved pipeline connections from the Mid Continent to refineries on the East Coast could replace Brent-priced light sweet crude with similar quality Bakken at a competitive price. Perhaps these barrels could make a real difference in the economic viability of the Delaware River refineries.