Alberta Oil Sands Sees Three Paths to Market for Crude Production

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Researched by Industrial Info Resources (Sugar Land, Texas)--Alberta has seen a tremendous boom in oil production since the huge reserves of bitumen, also known as tar or oil sands, have become economical to extract. As with most new plays, the problem now faced by producers is getting that oil to market.

With the current dearth of shipping options, the price of Alberta crude is low when compared with other crude, like Brent. This price may change, however, as more markets open up to Alberta crude oil, and pipelines headed east, west and south give producers plenty of options in choosing a market.

The much-publicized Keystone XL (KXL) pipeline, owned by TransCanada Corporation (NYSE:TRP) (Calgary, Canada,) is one of the proposed southern routes to take Alberta crude to the Gulf Coast refinery hub. With its presidential and State Department approval not expected until March 2014, however, alternate options have been developed.

One such development is the Mainline expansion project by Enbridge (NYSE:ENB) (Calgary). This project, which spans the U.S. and Canada, would expand the current border-crossing capacity by more than 300,000 barrels per day (BBL/d), roughly two-thirds of the capacity of the proposed KXL, but with a much more certain in-service date.

An alternative to relying on U.S. refiners in the Gulf Coast is to ship the oil to import-reliant countries in East Asia, such as Japan, South Korea and China. Kinder Morgan Incorporated (NYSE:KMI) (Houston, Texas) currently operates its Trans Mountain pipeline, which carries Canadian crude to refiners in Washington state. KMI plans to expand its Trans Mountain pipeline up to 890,000 BBL/d, with the new capacity intended for shipment to these Asian markets.

Another westward-facing option is Enbridge's Northern Gateway Pipeline and its associated terminal in Kitimat, British Columbia. The pipeline would carry about 525,000 BBL/d of oil to Kitimat for export.

Both of the western options are set to be in service by the end of 2017.

A third option under development is to ship the crude oil east to Quebec. The project, dubbed Energy East, is owned by TransCanada, and would transport up to 500,000 BBL/d from Alberta to Montreal via existing natural gas lines that would be converted to crude service. This project has met heavy resistance from environmental groups. If completed in 2019, it would reduce East Canadian refiners' dependence on Brent crude imports, potentially increasing their margins.

While choices for crude oil shipping remain potentially plentiful, with the exception of Enbridge's mainline expansion, no other project serves as a viable replacement for the KXL. If approved, TransCanada still hopes for a 2015 in-service date; however, the fate of that pipeline is in the hands of regulators in the federal government. In the long run, however, Alberta crude producers may have the freedom to choose from multiple markets.

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