Supplies of heavy crude from the Canadian oilsands are increasingly reaching the U.S. Gulf Coast and by 2020 could supply a full one-third of its refining market, says a new report from IHS Markit.
Analysts believe there is already over 800,000 bbls/d of Canadian heavy crude reaching the massive refining cluster, which they admit is much higher than other estimates.
“IHS Markit believes that Canadian heavy oil imports may be simply ‘stopping off’ at Cushing, OK in the U.S. Midwest—where they have already exceeded demand in that market—before being rerouted to the Gulf coast. Due to the way imports are often tracked, these imports would be counted as having been delivered into Cushing rather than to their final destination,” IHS Markit said in a statement announcing the report Looking South: A Canadian Perspective on the U.S. Gulf Coast Heavy Oil Market.
The U.S. Gulf Coast is home to the world’s highest concentration of heavy oil refineries and more than 90 percent of the heavy oil supplied to them comes from imports, analysts note.
Supplies from some traditional sources of these imports are waning. Over the past five years, production from Mexico and Venezuela has declined by nearly 1 million bbls/d, increasing the need for Canadian heavy crude oil of similar quality, the report says.
“With supply overtaking demand in the U.S. Midwest and traditional sources of offshore heavy supply to the Gulf Coast in decline, Canadian supply has become an obvious and attractive alternative,” said IHS Markit executive director Kevin Birn.
But there are risks to increasing Canada’s already sizeable reliance on the U.S. oil market, the report says.
For example, if new long-distance export pipelines are delayed, or if Canadian or other heavy oil supply is more prolific than anticipated, Canada may have to compete more aggressively for market share in the United States—something it has not yet had to do.
“The reality is that Canada—the 5th largest oil producer in the world—maintains an almost singular reliance on one market,” Birn said. “Such a situation is unique in the world and will always carry associated concerns.”