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U.S. crude exports to Canada see significant increases

By Patrick C. Miller | August 27, 2014

The export of United States crude to Canada has skyrocketed in recent years, thanks to dramatic increases in the production of sweet, light crude from the Bakken and other shale plays in the U.S.

Because outlets for light crude are becoming more limited, “for the first time in decades, the debate over exports has been broached, as the U.S. refining system approaches saturation levels,” according to a recent report from Turner Mason & Co.

The report is authored for TM&C by Ryan Couture, senior consultant, and John Auers, executive vice president. The firm monitors crude and refined product markets and how regulatory developments impact them.

Presidential approval is usually required to export U.S. crude—except for Canada as long as it’s used within the country. The small volumes of crude exported to Canada over the years have increased dramatically from 32 (thousand barrels per day) in December 2010 to 350 MBPD in June 2014.

According to the TM&C report, “The U.S. has passed OPEC (Organization of Petroleum Exporting Countries) member Ecuador in total crude exports (which averaged 272 MBPD in 2013) and have become the principal feedstock for Canada’s Atlantic Coast refineries.”

U.S. crude imports over the past several years have declined while domestic production rose. U.S. production has increased from 5 million barrels per day (MMBPD) a few years ago to 8.5 MMBPD and continues to increase.

“This growth has been an important ‘relief valve’ for U.S. producers as the ability of domestic refiners to absorb more light barrels approaches its limits, and exports to other countries are restricted,” the report said.

Despite this, the U.S. continues to import significant volumes of light and medium quality crude from Canada.

“Infrastructure limitations, regulations (export policy, Jones Act, etc.) and differing regional refinery capabilities all influence these movements. In the next few months and years, we could see dramatic changes in many of these factors,” Couture and Auers write.

Factors outlined in the report that could impact the trend of increased crude exports to Canada in the coming months include:

* The reversal of Enbridge’s Line 9, which transports imported crude west from Montreal to Sarnia in southwestern Ontario. This flow is being reversed to give the eastern Canadian refineries access to western Canadian crudes, potentially cutting into U.S. crude exports.

* Increasing Canadian production combined with the U.S. lack of approval for TransCanada’s Keystone XL pipeline and Enbridge’s Alberta Clipper expansion has made producers more desperate to find a market for their crude.

* Price disparities caused by increased U.S. crude production and restricted exports could enable Canada to use Montreal as a hub for the exchange of heavy crude for light. Using cheaper, foreign flagged transport vessels, Canada could ship heavy oil sand crude to the U.S. Gulf Coast and have them return with light, sweet crudes.

The report concludes: “As North America continues toward energy independence, a reshuffling of crude flows will take place to balance crude qualities with refinery demands. The increase in U.S. production will continue to flow north as long as the economics drive it in that direction. With the pending reversal of Line 9, there will be a shift in those economics, although the impact is yet unknown.”