A surge of Alberta heavy oil may soon hit global markets as new pipelines help companies bypass a contentious ban on U.S. crude exports.
With major export conduits such as Northern Gateway and Keystone XL stalled, some companies have sought U.S. government licences to re-export Canadian crude from U.S. shores. The shipments are rare but permitted under U.S. rules so long as the oil is not mixed with that country's crude.
The volume of such exports could explode over the next six months as deliveries begin on Enbridge Inc.'s Flanagan South pipeline, said Martin King, vice-president of institutional research at FirstEnergy Capital Corp. in Calgary. Enbridge said last week it expects to commence shipments on the conduit as soon as December. The pipeline would carry roughly 600,000 barrels per day (bpd) of mostly heavy crude from Chicago to Cushing, Okla., where the oil would be transferred to other pipelines for shipment to the U.S. Gulf Coast.
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"I think that's going to make a big difference, because Flanagan is more geared towards heavy barrels," Mr. King said Wednesday, noting Europe and Asia are potential markets for re-exported volumes. He said such shipments could climb as high as 500,000 bpd, from an estimated 25,000 bpd today.
"You're going to see a lot more of that happening, because as long as you can manifest it as Canadian-sourced crude, there's no worries about the export ban," he said. "Those numbers could really take off."
Efforts by Canada's oil industry to tap higher-priced global markets have so far been stymied, as multibillion-dollar pipelines get bogged down by political wrangling, legal challenges and regulatory delays.
Crude from Canada is exempt from the ban placed on oil exports during the Arab oil embargo in the 1970s. However, producers have only recently been able to take advantage of some pipelines such as the southern leg of TransCanada Corp.'s Keystone XL, which carry oil to the Gulf Coast.
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"There's certainly an opportunity" to boost re-exports as infrastructure gets built, said Justin Bouchard, analyst at Desjardins in Calgary. "What's not clear at this point is how big that opportunity might be, and how much proof you're going to need that your barrels are Canadian." It might be easier to distinguish Canadian crude in railcars, he said.
A spokesperson for the U.S. Department of Commerce said it doesn't reveal names of companies with permits to re-export crude.
Not every company is rushing to export Canadian crude, given currently volatile prices for oil and refined products. Valero Energy Corp., a major U.S. refiner, obtained an export permit earlier this year to ship Canadian crude from the Gulf to its Quebec refinery and to Britain, but the company has yet to use it, spokesman Bill Day said. "It's not really economically viable to do it on a regular basis, at least not with the margins we're seeing now," he said.