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Released September 14, 2015 | SUGAR LAND
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Researched by Industrial Info Resources (Sugar Land, Texas)--One of the many arguments against the Keystone XL (KXL) pipeline project by TransCanada Corporation (NYSE:TRP) (Calgary, Alberta) is that the oil it transports will be export-bound to non-U.S. markets and provide little, if any, benefit for American refiners. While it is true that Canadian crude oil could be exported overseas via the Gulf Coast, the realities of the market are that heavy, high-sulfur Western Canadian Sour (WCS) crude would find a home in the Gulf Coast market, likely displacing the similar heavy, sour crude that comes from Venezuela. Similarly, the WCS would pass through Cushing, Oklahoma, a hub for physical commodities trading, with access to Midwest refiners who could handle heavy, sour crude.
Thus, with the multiple options en route and at its end, the volumes exported overseas would be to secondary or tertiary markets for the WCS coming down, i.e. what is left over after American businesses have purchased what they need. Plus, of all the proposed Alberta WCS takeaway pipeline projects, it is one of only two that could directly benefit American refiners.
The refineries on the Gulf Coast currently import between 600,000 and 850,000 barrels per day (BBL/d) of crude oil from Venezuela, according to Energy Information Administration (EIA) numbers for the first half of 2015. The KXL pipeline is expected to have an initial capacity of 500,000 BBL/d, but is expected to be able to expand up to 830,000 BBL/d. With the correct price conditions, WCS would compete very closely with Venezuelan crude, and the price of WCS could potentially drop as it would travel fewer pipeline miles via KXL than by currently available routes, reducing the transport cost.
While the volumes on KXL could compete with Venezuelan crude, possibly leading to lower prices for Gulf Coast refiners due to the competition as a result, other proposed projects, such as TransCanada's 1.1 million-BBL/d Energy East project, would take WCS from Alberta with the aim of shipping it to other markets such as Europe. Similarly, the Trans Mountain Expansion Project (TMEP 890) by Kinder Morgan Incorporated (NYSE:KMI) (Houston) would take an additional 590,000 BBL/d of WCS to the west coast for export to Asia. While Enbridge Incorporated (NYSE:ENB) (Calgary, Alberta) revitalizes its Line 3 to bring 760,000 BBL/d of WCS to the Midwest, it is the only other WCS takeaway project to directly benefit the American market, but it takes the long way to get crude to the hub in the Gulf Coast, keeping transportation premiums high.
While it may be legal for oil from Canada to be exported overseas via a U.S. port, the local demand and price of similar crude would make volumes from KXL a boon to Gulf Coast refiners. This is especially true if KXL were to be completed before access to other international markets open up for WCS crude, as U.S. refiners would have considerably less competition.
Industrial Info Resources (IIR), with global headquarters in Sugar Land, Texas, five offices in North America and 10 international offices, is the leading provider of global market intelligence specializing in the industrial process, heavy manufacturing and energy markets. Industrial Info's quality-assurance philosophy, the Living Forward Reporting Principle, provides up-to-the-minute intelligence on what's happening now, while constantly keeping track of future opportunities.
Thus, with the multiple options en route and at its end, the volumes exported overseas would be to secondary or tertiary markets for the WCS coming down, i.e. what is left over after American businesses have purchased what they need. Plus, of all the proposed Alberta WCS takeaway pipeline projects, it is one of only two that could directly benefit American refiners.
The refineries on the Gulf Coast currently import between 600,000 and 850,000 barrels per day (BBL/d) of crude oil from Venezuela, according to Energy Information Administration (EIA) numbers for the first half of 2015. The KXL pipeline is expected to have an initial capacity of 500,000 BBL/d, but is expected to be able to expand up to 830,000 BBL/d. With the correct price conditions, WCS would compete very closely with Venezuelan crude, and the price of WCS could potentially drop as it would travel fewer pipeline miles via KXL than by currently available routes, reducing the transport cost.
While the volumes on KXL could compete with Venezuelan crude, possibly leading to lower prices for Gulf Coast refiners due to the competition as a result, other proposed projects, such as TransCanada's 1.1 million-BBL/d Energy East project, would take WCS from Alberta with the aim of shipping it to other markets such as Europe. Similarly, the Trans Mountain Expansion Project (TMEP 890) by Kinder Morgan Incorporated (NYSE:KMI) (Houston) would take an additional 590,000 BBL/d of WCS to the west coast for export to Asia. While Enbridge Incorporated (NYSE:ENB) (Calgary, Alberta) revitalizes its Line 3 to bring 760,000 BBL/d of WCS to the Midwest, it is the only other WCS takeaway project to directly benefit the American market, but it takes the long way to get crude to the hub in the Gulf Coast, keeping transportation premiums high.
While it may be legal for oil from Canada to be exported overseas via a U.S. port, the local demand and price of similar crude would make volumes from KXL a boon to Gulf Coast refiners. This is especially true if KXL were to be completed before access to other international markets open up for WCS crude, as U.S. refiners would have considerably less competition.
Industrial Info Resources (IIR), with global headquarters in Sugar Land, Texas, five offices in North America and 10 international offices, is the leading provider of global market intelligence specializing in the industrial process, heavy manufacturing and energy markets. Industrial Info's quality-assurance philosophy, the Living Forward Reporting Principle, provides up-to-the-minute intelligence on what's happening now, while constantly keeping track of future opportunities.
