Analyst: Pipeline Projects Key for Canada to Win N. America Oil Export Race

Rigzone: What do you see as the key manifestations of the United States’ procrastination that is costing it first-mover advantage for North American crude exports?

Rositano: There is currently a law prohibiting crude oil exports from the U.S, enacted in the 1970s. Until recently, the U.S. was the world’s largest importer of crude oil, but higher domestic crude oil production from hydraulic fracturing has reduced imports. There is no uniform view within the oil industry concerning crude oil exports. Refiners in the U.S. oppose exporting crude oil while producers favor it. Each is lobbying Congress to promote their view as the best approach for the country. Public perception is also a concern, as exporting crude oil could increase gasoline and consumer prices. There are also environmental concerns, as more fracking will increase crude oil production volumes in the U.S.

Rigzone: In terms of potential crude export volumes, how do Canada and the United States compare?

Rositano: Higher crude oil production levels in Canada are clearly surplus to their internal requirements. It is forecast that Canadian oil production could increase by over 3 million bpd within the next decade. This increase would be used to reduce crude oil imports to their East-Coast refineries. The remaining volumes, forecast at over 2 million bpd, would then be available for export.

The situation in the U.S. is not as clear-cut as in Canada. While U.S. production will increase, it will remain below oil demand levels and U.S. refining capacity levels.

It should be noted that the U.S. has emerged as a major product-exporting country, with exports reaching 3 million bpd in 2013. U.S. refiners have a feedstock and fuel-cost advantage over international competitors as land-locked North American crude oil sells at a discount to international crude oil, while lower-cost natural gas provides a fuel-cost advantage. The question for exports from the U.S. could become whether it is more advantageous for the country to export crude oil or product, or to arrive at a consensus as to the optimal mix of crude oil and refined-product export levels.

Rigzone: Which particular markets is Canada best positioned to serve, and is it in a better position than the U.S. in any cases?

Rositano: Canada is best positioned to export crude oil into the Pacific Basin area, as the increase in oil demand and refining capacity combined with stagnant crude oil production in Asia will necessitate incremental crude oil imports. Additionally, the construction of deepwater ports on Canada’s west coast will allow larger tankers (very large crude carriers [VLCCs]/Suezmax) to transport crude oil to Asia in a cost-effective manner.