East coast exports of Western Canadian crude

Thursday, November 6, 2014

As Western Canada produces more heavy crude oil, will it be exported from ports on Canada's relatively distant east coast?

Eastern Canadian exports of Western Canadian crude oil may increase, according to Canadian oil producer Suncor Energy Inc.  In its third quarter investor call, company Chief Executive Officer Steve Williams indicated that it could have long-term opportunities to export Cold Lake-grade crude oil by sending it by rail from Alberta to East Coast ports.  According to ExxonMobil, Cold Lake Blend is an asphaltic heavy crude blend of bitumen and condensate.

If long-term opportunities may exist, so too have recent opportunities.  In September 2014, Suncor confirmed that it had sent its first shipment of Western Canadian crude by rail to a storage facility in Sorel-Tracy, Quebec, from which it was loaded onto a tanker ship and sent to Europe.

Many aspects of the Canadian oil industry are regulated, such as the development of new crude oil pipelines from landlocked Alberta to distant refineries, storage facilities and ports.  Several pipelines have been proposed to increase takeaway capacity from the Western Canadian oil sands region, including the Energy East Pipeline in Canada and the Keystone XL Pipeline in the U.S.  But as securing regulatory approvals for pipelines takes time, shipping crude oil by rail has emerged as a quicker alternative.

In its most recent investor presentation, Suncor touted its near-term access to global markets, with over 600,000 barrels a day of sendout capacity.  Its current capacity includes over 80,000 barrels per day by rail, as well as over 70,000 barrels per day via pipeline to the U.S. Gulf Coast.  By 2015, Suncor plans for the 130,000 barrel per day "Line 9" pipeline to be reversed, allowing flows from Sarnia into Montreal.  Beyond then, Suncor is looking at additional pipeline projects including Keystone XL, Energy East, the Trans Mountain Expansion, and the Enbridge Northern Gateway pipeline to British Columbia.

As Suncor and other Western Canadian oil producers eagerly await new pipeline capacity, rail shipments may continue to serve as a temporary measure.  If pipelines can be developed to key market points, they typically offer a lower shipping cost per barrel than railroads can.  At that point, railroads may see a reduction in the volume of oil they ship  -- but until then, Western Canadian oil producers may continue to rely on rail to reach eastern ports.

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