Canadian refineries are taking in a surge of foreign oil supplies as the price difference between U.S. and international crude narrows, the latest sign of heightened competition in a market grappling with massive oversupply.
In Quebec, imports of crude from Angola, Nigeria and Ivory Coast climbed in the fourth quarter while U.S. deliveries fell sharply, by about 37 per cent from the third quarter, trade data show.
Meanwhile, Irving Oil Ltd.'s 300,000 barrel-a-day plant in New Brunswick – Canada's largest – has cut back on North American supplies and is buying a range of water-borne crudes, including more shipments from West Africa and the North Sea, a refining industry source said.
The Atlantic trade is a reflection of renewed competition for market share in a region that benefitted most from the U.S. shale boom, underscoring the dramatic upheaval facing crude producers as a result of a global glut and lacklustre demand.
For years, eastern refineries in Quebec and New Brunswick sought to replace expensive overseas imports with cheaper landlocked North American production. Companies invested heavily in rail capacity and backstopped pipelines such as Enbridge Inc.'s Line 9 conduit and TransCanada Corp.'s proposed Energy East project.
But global oil prices have more than halved since last June, making supplies from the Organization of the Petroleum Exporting Countries and elsewhere more competitive with discounted shale and oil sands production.
"There's a more compelling case for water-borne, but certainly we're going to see East Coast refineries source both," said Michael Ervin, president of MJ Ervin & Associates, a division of The Kent Group.
"Domestic producers are as interested in continuing to supply the East Coast as offshore producers would like to see East Coast refiners take their product."
To be sure, the shift has not backed out North American supplies completely. Quebec imports of U.S. crude and related products were still up roughly 82 per cent in the fourth quarter compared with a year earlier, Statistics Canada trade data show.
Similarly, Newfoundland and Labrador's 115,000 barrel-a-day Come by Chance plant, the province's sole refinery, is processing "primarily" Gulf Coast crudes, said Neal Shear, a partner at SilverRange Financial Partners LLC, which bought the plant last September from Korea National Oil Corp.
But oil prices have tumbled about 60 per cent since June, although the global benchmark surged almost 8 per cent on Friday to roughly $53 (U.S.) a barrel. Still, the price rout has prompted Valero Energy Corp. and others to swap some North American production for overseas supplies.
"I suspect we'll react economically like anybody else," Mr. Shear said, although the Newfoundland plant is tied by a long-term supply arrangement.
Quebec imports of Nigerian crude doubled to more than two million barrels between the third and fourth quarters last year, data for October and November show. Imports of Angolan crude jumped 2.3 per cent over the same period.
Energy industry experts say the spike is a function of the narrowing price gap between U.S. benchmark West Texas intermediate oil and Brent, the international marker.
In recent years, North American crude has sold at a hefty discount to international prices, as fast-growing production from Alberta's oil sands and U.S. shale deposits outpaced available pipeline capacity.
The spread between the two oils has narrowed considerably in recent months – to less than the cost of moving crude by rail, according to industry data. That will reduce some of the advantage of sending Western Canadian crude east, a key selling point for major pipeline projects such as Line 9.
Delays to the Enbridge project were one reason Valero saw an uptick in foreign imports at its 265,000 barrel-a-day Jean Gaulin plant near Quebec City through the third quarter last year, spokesman Bill Day said.
"I would attribute some to economics and some to the fact that we didn't see the final reversal" as expected, he said.