Domestic crude has increased its share of the Canadian refinery market

According to the Canadian Energy Dynamics: Review of 2014 report, released on 19 February, the energy sector in Canada is continually being shaped by new sources of supply, changing demand, and integrated infrastructure development.

Overseas markets

Prior to 2013, Canadian crude oil exports to destinations other than the US were relatively minor, and were predominately either light crude shipments from offshore Newfoundland and Labrador to Europe, or Alberta crude shipped from Trans Mountain’s Burnaby, B.C., marine terminal to Asia. However, in the past two years, volumes from Atlantic Canada that historically would have been sent to refineries in Eastern Canada and the US have been sent elsewhere, displaced by growing US supply. Canadian crude exports to Europe have grown to account for over 3% of total exports, and exports to South America have also increased considerably.

Canadian crudes have also been shipped from American ports to markets in countries such as Spain and Switzerland. The long term viability of Europe as a market for Canada’s crude oil will depend on, among other things, the price discounts for Canadian crude, security of Russian oil supplies to European refineries and policies that influence the types of crude that are refined in Europe.

Bitumen prices

Canadian crude oil prices increased at the beginning of the year, peaked during the summer due to favourable market access conditions and record demand in major U.S. refinery markets, then decreased as global crude oil benchmark prices collapsed. Strong U.S. demand for heavier crudes and greater export capacity translated into lower price discounts between Canadian and US crude oil varieties. In addition, a depreciating Canadian dollar lowered the overall impact of falling crude oil prices on Canadian crude producers whose products are sold in US.dollars while costs are primarily based in Canadian dollars. Heavy crude oil price discounts, which peaked in early 2013, decreased consistently as the year progressed and are expected to remain at current low levels until production growth surpasses existing transportation capacity.

Statistics from the Alberta Government show that the average value of bitumen at Hardisty, Alberta, increased by approximately 20% in 2014 relative to 2013, even after accounting for the price fall that occurred during the second half of the year. In addition to benefiting from lower price discounts and a lower Canadian dollar, the value of bitumen also improved due to lower diluent prices.

Crude imports in Eastern Canada

Crude oil imports into Canada for the first ten months of 2014 averaged 615 million bpd, 11.2% lower than the same period in 2013. The downward trend that started in 2008 is partly related to closures of refineries in Montreal (Shell in 2010), Dartmouth (Imperial in 2013) and most recently, Sarnia (NOVA in June 2014). In addition, refinery demand data from Statistics Canada shows that domestic crude oil has also increased its share of the Canadian refinery market and in particular in Eastern Canada, which receives almost all of the imports. Crude oil imports from offshore regions into Ontario have all but disappeared starting mid-2014.

While total imports have declined, imports from the US have grown from 19.5% of total 2013 imports to 50.7% in 2014, largely at the expense of light oil imports from the North Sea and Africa. Most of the increase is related to growing volumes of Bakken crude oil moved by rail to refineries in Québec and the Maritimes and more recently, Eagle Ford crude moved by tanker from the US Gulf. These lower-priced supplies of light crude oil have been displacing crude oil supplies from offshore Atlantic Canada and offshore imports into Eastern Canada’s refineries. Most of the displaced Atlantic crude oil has been shipped to Europe.

Harvest Operations Corp, the Canadian subsidiary of the Korean National Oil Corp. completed the sale of the Comeby-Chance refinery in Newfoundland to Silver Range Financial Partners LLC of New York on 17 November 2014. The refinery has been struggling with poor margins for years, as it relies on expensive offshore crude oil imports. The new owners plan to continue to operate the refinery, switching it to use US shale oil as feedstock. There was market speculation that the facility would have shut down indefinitely after its September 2014 scheduled maintenance shutdown if no new buyer was found.

Read the report in full here.

Adapted from report by Rosalie Starling

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