Ed: I would like to reinforce your statement that the pipelines are significant. Not only are they significant, but the control of the pipelines is critical to the control of US crude prices. Follow the money.
Both the Seaway and Capline pipelines were built to offload offshore crude and transport it to Cushing and Mid-Continent refiners (south of Chicago). Both are still flowing north at greatly reduced capacity. If both were reversed, this would add up to ~350 + ~1,200= ~1.5 million bbl/day flowing southward to the US Gulf Coast.
The increases in production from Canada displaced northerly Capline flows (over several years) some time ago. About a year ago, a new Keystone pipe flowing south into Cushing (plus increased Bakken production) displaced even more Seaway northerly flows.
But that is just the 'bulk flow' story. Grade counts. Most of the crude flowing from Canada is heavy-sour grade including WCS (API ~32), other heavy grades and blended bitumen, but much of new production is heavy-sour or dilbit (API 17-22). Many of the Mid-Continent refiners have made the investment to be able to process heavy grades over the past several years [e.g. Koch and COP refineries. A 300 kbpd expansion of heavy crude processing capability is nearing or has been completed at COP/CVE Woods River (2008 to 2011). en.wikipedia.org Koch has invested in heavy crude processing capability. fhr.com ]
Many of the US Gulf Coast refiners are already processing Mexican Mayan (API 22) or Venezuelan Heavy (API 17-24) so the switch to Canadian heavy grades delivered via the Keystone XL will not require a big investment (saving time and money). In effect, XL enables the partial displacement/replacement of Mayan & Venezuelan heavy. The price differential is quite large now but, IMHO, would expect the current $20~$30/bbl differential to be reduced once XL flows. (many data sources e.g. eia.gov )
I would guess that the US Gulf Coast refiners are salivating over the prospect of getting cheaper heavy Canadian crude but the simple fact of Mexican decline rates makes XL a priority for them. "Of this, the Mayan, or heavy oil component, has seen the largest reduction, accounting for 75% of the decline in crude exports since 2004." "exports of heavy oil to the U.S. will be continuing to decline in the range of 150 to 200 thousand B/d by the end of 2010" (http://www.firstenergy.com/research/documents/Facts-I-SpotlightMexico-2009-03-27.pdf )
IMHO, if the Hardisty-Maya/Venezuela differential does not shrink significantly, and quickly, expect all long-term future growth in Canadian heavy crude production to be shipped overseas. Delays on XL will just accelerate the decision making. So your comment "will not re-emerge for many moons if at all." is partially true. In the short-term to medium term.... true. In the medium to long-term? IMHO, nope.
Few off-shore refiners are set-up for heavy crude, however, I am guessing the Chinese are converting/have already converted some capacity to heavy feedstocks because of investments in Venezuela several years ago. Any commitment of an off-shore refiner to spend an extra couple of hundred million dollars to process heavy crudes will require a corresponding commitment for secure supply for many years. As the Chinese already own many tens of billions of barrels (hundreds of billions?) of Canadian reserves and production, the only thing left is the transport mechanism.
[Aside: Do not expect a significant drop in US gasoline or diesel prices because of the completion of the XL pipeline. US Gulf Coast refiners will sell the product to whomever pays the most... where ever the customers are.... around the globe, the US East Coast or Europe.... at world prices minus transport cost.]
The simple fact is that the US transport fuel market is declining, not growing. Having growing crude production from Canada, Bakken and NGL's 'stranded' in the US Mid-West will not be tolerated for very long.
I would guess that there is great concern in Ottawa and Edmonton that this issue might hit the Canadian public interest 'hot list'. If it does and the public perceives that actions were taken, or not taken, that were not in the best interests of Canada, then incumbent governments will most certainly fall. To put a scale to this issue, the dollars involved in the Hardisty-Maya/Venezuela differential exceeds the balance of trade deficit for the entire country or would be almost equal to the projected 2012 deficit for the Canadian Federal government.
This is not 'small potatoes' or 'irritant' scale to the Canadians. It is "That's not fair so screw you" scale.
Ray |
