Why Does Canada Import So Much Crude Oil?

I recently came across an infographic stating that Canada requires a new West-to-East pipeline to secure its energy and economic independence. The statement is predicated on the fact that Canada spent nearly CA$544 billion[1] on foreign oil imports between 1988 and 2023. There is no doubt that the sum is large, but 36 years is also a long time. The infographic also misses important context by focusing only on import values.

Total export value can be misleading.

For a number of reasons, it makes more sense to evaluate crude oil supply and demand on a volumetric basis rather than focusing on its value. Crude oil price volatility has had a significant effect on the value of crude imports over the 36-year period highlighted by the aforementioned infographic. From 1988 to circa 2000, Dated Brent typically traded in the US$20/barrel (bbl) range.[2] After 2000, however, prices rapidly climbed to over US$110/bbl and have remained above US$40/bbl ever since.[3] This dramatic increase in price contributed significantly to the large infographic headline number.[4]

Similarly, looking solely at import values – ignoring exports – also misses context that can be provided by looking at the market on a more holistic basis. Over the same 36-year period, the value of crude exported from Canada totaled CA$1,630 billion.[5]  Between 1988 and 1992, crude oil exports were 1.3 times larger than imports, increasing 7 times between 2020 and 2024. That change should be no surprise to Canadian oil industry observers who have witnessed the explosive growth in oil production, but it demonstrates that imports have actually become less significant on a relative basis.

Bottom line: The quantity (i.e., volume) imported provides a better indication of trade flows and more effectively signals the underlying fundamentals driving the choice to import rather than consume domestic crude oil, most of which is independent from the absolute price of crude oil.

How significant are imports to the Canadian crude oil market?

A more holistic perspective can be obtained by looking at the volume of imports and exports relative to domestic crude oil production. Due to a change in the methodology employed by Statistics Canada, it is not possible to compare supply and disposition data prior to 2016 with that for the subsequent period.[6] However, the more recent data is sufficient to gain insight into the Canadian crude oil market after its explosive production growth.

Between 2019 and 2023, Canadian imports averaged 757 thousand barrels per day (kbd) while exports averaged 3,843 kbd.[7] While dwarfed by exports, imports supplied 43% of total Canadian refinery demand. Imports obviously represent a significant component of the crude oil supplied to Canadian refineries, and this fact begs the question why a such large portion of Canadian refinery demand is not being supplied by domestic production. Pipeline logistics are a key factor but are only a part of the picture.

Crude oil quality plays an important role.

In simple terms, crude oil is distilled into three broad components:

1. Naphtha – which is blended into gasoline,
2. Distillate and gas oil – which can be used as jet or diesel fuel or further processed into gasoline, and
3. Resid – the material left after the lighter naphtha, distillate, and gas oil have been extracted.

In its native state, resid can be used as a heavy fuel oil or can be used to manufacture asphalt, both generating significantly less revenue than naphtha, distillate, or gas oil. With the right equipment, typically a coker, resid can also be further processed to manufacture lighter products including gasoline.

Figure 1 compares the components in a representative sample of Canadian crude oil production. Western Canadian Select (WCS) is a typical heavy crude oil blend, Mixed Sweet Blend (MSW) is a conventionally produced light sweet crude oil, and Synthetic Sweet Blend is a blend of light synthetic crude oils produced from various upgraders in Alberta. WCS produces significantly more resid than MSW or SYN. Without a coker, a refinery operator choosing to process WCS will produce a large quantity of low-value resid. To maximize revenue, the refinery would preferentially choose the lower-resid crude oils.

Figure 1. Canadian Crude Oil Characteristics Source: crudemonitor.ca, 5-year average. WCS at Hardisty, MSW and SYN at Superior.

While other crude oil quality factors will also constrain Canadian refineries’ ability to process heavier crude oils, Canada’s limited installed coking capacity – especially when compared to U.S. refineries – is a key factor in their decision to process lighter crudes. In fact, no refineries east of Ontario are equipped with cokers, and coking capacity totals just 1.3% of total crude oil capacity for Ontario refineries and 0.5% for Western Canadian refineries. By way of comparison, coking capacity totals 13.6% of total crude oil capacity in the U.S. Midwest, a significant destination for Canadian heavy crude.

Would a new West-to-East pipeline make a difference?

“If you build it, he[8] will come” is the tag line from the movie Field of Dreams. Justifying a new West-to-East pipeline based on the value of crude oil imported into Canada is akin to a field of dreams. The pipeline could make a valuable contribution to the Canadian crude oil market, but it is unlikely to increase the consumption of Canadian crude oil at Eastern Canadian refineries because Eastern Canadian refineries are unable to economically process dilbit.[9]^,[10]  If a West-to-East pipeline were constructed, imported crude oil would continue to supply Eastern Canadian refineries while the majority of the crude oil transported would be destined for export as it is today via other logistics methods.

Is it feasible to process more Canadian heavy in Canada?

Circling back to the infographic that started this thought exercise, the primary reason why Canada has imported so much crude oil is more a function of crude oil quality rather than a lack of pipeline capacity. Processing incremental Canadian heavy crude would require the installation of additional coking capacity at the Eastern Canadian refineries, and doing so would not be cheap. Suncor, for example, estimated that adding a coker to its Montreal refinery would cost CA$2 billion in 2020.[11] Outfitting the three existing Eastern Canadian crude oil refineries with the upgrades necessary to process a meaningful amount of Canadian heavy crude oil would be cost prohibitive.[12]

Furthermore, the Canadian refining industry is under pressure from the energy transition. Government regulations mandate a transition to zero emission vehicles (ZEV) by 2035.  Industry initiatives, like moving to adopt sustainable aviation fuels (SAF), will further decarbonize fuels sold in Canada. These and other trends do not contribute to an environment that supports the size of investment required for refineries to process a significantly different crude oil slate. In fact, Rory Johnston has made the case that “[b]usiness leaders and policy-makers alike need to manage the balance between regulation and preservation carefully so as to not further contribute to secular market pressures on the [refining] sector and accelerate potentially premature closures of remaining Canadian facilities.”

While it may be technically feasible to process more Canadian heavy crude in Canada, as is evidenced by Suncor’s development of a coker project at their Montreal refinery, the industry is unlikely to make the investments necessary in light of concerns that regulation may lead to the closure of the facility.

Conclusion

Canada’s crude oil import story is a case study in the complexities behind energy logistics, refinery capabilities, and product quality – not just pipelines and trade balances. While the value and volume of imports make headlines, the real drivers are the technical limitations of refineries and the specialized nature of Canadian heavy crude. Simply building new infrastructure or expanding supply routes is not enough; the economics of refinery upgrades and the ongoing energy transition present barriers that cannot be solved with a single project.

At Stillwater Associates, we understand these market dynamics from every angle. Our expert team brings deep, data-driven insights to help clients navigate the nuances of crude supply, refinery investments, and policy impacts. For actionable, unbiased analysis to guide strategic decisions, industry stakeholders trust Stillwater to turn complexity into clarity (and opportunity)! Reach out to us for consulting solutions tailored to the realities of today’s evolving petroleum landscape.