Most, if not all, crude oil that would be transported via the proposed Keystone XL pipeline to the US Gulf Coast would not be exported, and the vast majority of refined product (about 70%) derived from it would be consumed in the United States, according to a new report by IHS.
The report, which analyzes the outlook for oil sands and other heavy crudes in North America, also says that the amount of oil sands flowing into the United States would still grow regardless of whether Keystone XL is built.
“There is a common misunderstanding that somehow most or all of the oil shipped to the U.S. Gulf Coast via the Keystone XL pipeline would be exported to other countries,” said Aaron Brady, senior director for IHS Energy. “The reality is that the U.S. Gulf Coast is the world’s largest single refining market for heavy crudes such as oil sands, making it unlikely these barrels would be exported offshore. And, the overwhelming majority of refined products produced in the Gulf are consumed in the United States, regardless of the crude source.”
The US Gulf Coast is the largest refining market for crude—and particularly heavy crude of the type produced by Canada, Mexico and Venezuela—in the world. Some 2.7 million b/d of refining capacity on the Gulf Coast has been optimized for heavy sour crudes over several decades. As a result, the report predicts “a contest looms on the U.S. Gulf Coast between Canadian and Latin American crudes.” The report notes that “Venezuelan exports have also tilted away from the U.S. market and towards Asia as a result of a set of Chinese government loans that carry along a commitment of oil supply.”
Previous IHS research has concluded that the greenhouse gas emission impact from importing and processing more oil sands crude in the United States would be negligible since they would take the place of other heavy crudes that are currently being imported that have a similar carbon intensity—such as those from Venezuela.
“Regardless of whether the oil is imported from Canada or Venezuela, the overwhelming majority of the refined products produced in the Gulf will continue to be consumed in the United States,” Brady added.
The new IHS report finds that, absent new pipeline capacity, the use of alternate transportation routes—including rail— would still result in the growth of oil sands imports into the United States.
The report also finds that overall growth in oil sands production is expected to continue despite the collapse in oil prices over the past several months. Oil sands projects, the report notes, have a very long time horizon—with production lasting as long as 30 to 40 years—making them relatively resilient to periods of low oil prices.
“Currently there is over 1 million barrels per day of capacity at various stages of construction in the oil sands,” said Kevin Birn, director of the IHS Oil Sands Dialogue. “IHS anticipates existing projects will continue to operate and those under construction will proceed to completion. While investment will not be immune to the drop in oil prices, significant production growth is still expected over the coming years. IHS expects oil sands production to rise to 2.9 million barrels per day by 2020, an increase of 800,000 barrels per day (without diluent).”
Image from TransCanada