Several oil-producing African countries are expected to be searching for new export markets as a recently approved Canadian pipeline project enables refineries in the province of Quebec to run entirely on North American crude.
Amid rising production in Canada’s oil sands – the third-largest proven reserves in the world – the country’s petroleum industry says Canadian crude could also displace oil shipments from Mexico and Venezuela to the U.S. Gulf coast in the coming years.
However, the immediate threat is to countries such as Algeria, Nigeria and Angola, which – together with Norway – collectively exported an average of roughly 165,000 barrels of oil per day to Quebec through the first eight months of the year, according to Statistics Canada data.
That’s expected to change in the aftermath of a Sept. 30 ruling from Canada’s National Energy Board that permits Enbridge to expand and operate pipelines, known as Line 9 and Line 9B, that will effectively connect Quebec with western Canada and the U.S.
This has significant implications for Quebec’s two refineries, run by Suncor and Valero Energy, which Enbridge says represent about one-fifth of Canada’s total refining capacity and have historically relied on foreign oil for 90 per cent of their requirements.
In its most recent annual report, Suncor said the long-awaited approval of Line 9B would give the company the flexibility to run its Quebec facility – which has a capacity of 137,000 barrels per day – entirely on North American-priced oil.
“(It) will provide supply options as well as access to inland crudes,” spokesperson Sneh Seetal told Al Arabiya News.
“This in turn will enhance the long-term competitiveness of our Montreal refinery.”
Similarly, Valero Energy has previously mulled running its Jean-Gaulin refinery outside Quebec City entirely on crude sourced from North America. Following this fall’s National Energy Board decision, the company said it planned to source half its supplies from western Canada. Valero Energy says its Jean-Gaulin refinery has a capacity of 265,000 barrels per day.
The National Energy Board ruling comes as Canada’s petroleum industry predicts production will increase by nearly 20 per cent to 4.64 million barrels per day by the year 2020 as capital projects currently underway are completed and enter operation.
With so much money already invested in these projects, energy firms have an incentive to complete them and start generating revenues despite persistently low global oil prices. But beyond 2020, industry observers predict growth rates will slow as producers postpone or reconsider long-term growth plans.
The industry anticipates some of this additional production will find its way to the U.S., particularly the Gulf Coast region where refineries are set up to process heavy crude similar to what is extracted from Canada’s oil sands.
Sending more crude to the Gulf would require displacing other heavy oil exports, primarily from Venezuela and Mexico, according to the Canadian Association of Petroleum Producers (CAPP).
However, the industry organization says limited pipeline connections between western Canada and the Gulf Coast is a major barrier to Canadian firms gaining a greater share of this market.
Energy firms have attempted to address this by planning new pipelines, but have run into opposition from environmentalists on several high-profile projects, most notably the Keystone XL pipeline – a 1,897-kilometre project running from Alberta’s oil sands to Nebraska, where it will connect with existing pipelines to refineries in Illinois and Texas – that has been repeatedly stalled by U.S. lawmakers.
Nevertheless, Canadian oil is still finding its way to the Gulf Coast via other pipeline routes and rail, leading CAPP to forecast that Canadian crude oil shipments to the region will nearly double from 235,000 barrels per day in 2014 to 468,000 barrels per day by 2020.
“It doesn’t necessarily have to be (new) pipeline capacity,” said Greg Stringham, CAPP’s vice-president of oil sands and markets. “Most people are expecting the Keystone XL to be delayed further. There are alternative pipelines (and) there is rail that can allow that growth to continue to happen.”
Canadian companies are also eager to sell crude to energy-hungry Asian markets by constructing new and expanded pipelines connecting the oil sands to export terminals on Canada’s west coast.
However, several of these projects – namely Kinder Morgan’s Trans Mountain pipeline and Enbridge’s Northern Gateway pipeline – remain stalled in court challenges due to opposition from environmentalists and Aboriginal groups.