Alberta upgraders an option if pipelines blocked, analyst says

Calgary Herald ^ | MAY 24, 2012 | DAVE COOPER

[thackney]

If new bitumen pipelines are not built to the West Coast, Alberta must opt for both new local upgrading projects, and more capacity to produce refined products which can be more easily shipped and exported, a global energy expert said Thursday.

“If Northern Gateway doesn’t go ahead, or Kinder Morgan’s TransMountain to Vancouver, Alberta could produce more synthetic crude to move east to Sarnia and beyond. Another option is more local refining, and certainly there is strong local demand for diesel,” said Robert Johnston, director of global energy and natural resources for the Eurasia Group, at the PricewaterhouseCoopers Energy Visions business forum.

Already, new upgraders near Chicago and in Detroit are being built to handle more Alberta’s heavy crude from the oilsands, joining existing complexes in the U.S. Midwest and Gulf Coast.

Enbridge is planning to reverse its existing pipeline which now brings foreign oil to the three refineries in Sarnia, Ont. However, those refineries currently can’t process heavy crude, and the Enbridge line would need to supply those plants with either synthetic crude or a lighter feedstock from new shale oil deposits.

But the bigger game for Alberta is the Gulf Coast, where Alberta crude is slowly replacing foreign imported oil from Mexico, Brazil, Colombia as well as Africa and Persian Gulf.

Currently, Alberta’s crude is being processed in the Gulf Coast’s huge upgrading refineries which have a capacity for three million barrels a day, almost 10-times Edmonton’s refining capacity.

However, because the American domestic market is no longer growing and cannot absorb all the gasoline and diesel produced, the U.S. is now exporting much of this to Latin America.

“Mexico and Colombian heavy oil (very similar to Alberta’s oilsands diluted bitumen) is coming into the U.S. but a lot is being shipped back to those countries as gasoline. This will change when they build their own upgrading refineries (and produce their own gasoline and diesel),” said Johnston.

This will mean more market for Canadian oil and a higher differential, which translates into reduced discounts producers here must absorb and higher prices for the province and companies.

“But this cuts both ways, because the refineries are running at 85 per cent utilization because of these gasoline exports. If that disappears, or the U.S. decides to tax exports (to increase domestic supply and lower gas-pump prices for American consumers) things could change,” he said.

“If the refineries have to run at 70 per cent, then that long line of (surplus) barrels will back up all the way to Edmonton.”

“If you lose a million barrels per day over several years, will you have a new market to offset that? Right now, the answer is no.”

With North American and European consumer gasoline markets flat or declining, and Latin American nations producing enough for their own needs, what is left?

“We can’t compete with the Asian market, with the Indian, Chinese and Saudi refineries,” he said.

Which is why supplying crude oil to Asia from the West Coast is so important to Canada’s national economy. Asian nations want a variety of supply, and Canada’s stable economic and political environment mean they can count on us for some of their needs, he added.

[thackney]

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http://www.kindermorgan.com/business/canada/transmountain.cfm

http://www.kindermorgan.com/business/canada/transmountain.cfm