The looming bottleneck for Canadian oil sands crude isn’t getting into the US, it’s getting out of the Midwest.
A panel of energy experts told the Senate Energy and Natural Resources Committee January 31 in Washington, DC that Canadian oil producers won’t run out of pipeline capacity to ship additional crude across the US border until about 2019.
But in just the next two years, Midwestern refineries, which currently take that cross-border output, will hit their capacities and be unable to process more crude, said James Burkhard, Managing Director of IHS CERA.
The controversial Keystone XL pipeline, which TransCanada wants to build from Alberta, would carry crude all the way to the US Gulf Coast, to major refinery complexes and ports. Current pipelines leading south are reaching capacity. President Obama decided January 18 that environmental issues for a segment from Alberta into Nebraska couldn’t be resolved by a February Congressional deadline and rejected the pipeline, but invited TransCanada to reapply.
Fuming Canadian officials said they’d consider exporting the oil to China instead, and Chinese oil interests have already bought into the oil sands.
But Roger Diwan of PFC Energy said a pipeline proposed by Enbridge across the Canadian Rockies, to a greenfield port site at Kitamaat on the British Columbia coast, faces “even bigger environmental concerns” than the Keystone route in the US. That leaves Canadian producers geographically locked with the US, he said, and many US companies have invested in the oil sands.
Ambassador Richard Jones, Deputy Executive Director of the International Energy Agency, said the US pipeline bottleneck south from the giant interchange at Cushing, OK, keeps US prices lower than world oil prices. The differential between the two has been running about $10 a barrel, he said, but reached as high as $24 in 2011, he said, as US demand lagged in the recession but world demand grew.
Fixing pipeline bottlenecks is crucial not just for Canada but for the US to reverse the historic decline in its oil production, the experts said.
Infrastructure Challenge Builds
Infrastructure overall is the largest challenge to what Burkhard called “the great revival” of the US oil and gas industry that IHS sees developing in this decade. Pipelines have been built from historic production areas in the southwest and Gulf refineries to consumers in the Northeast, for instance, but now natural gas has been discovered in northeastern shales, requiring investment in repurposing or building new gathering and delivery systems.
Diwan said the infrastructure challenge is growing because of the application of the technologies used to extract natural gas from shales to tight oil formations, as well.
He foresees “three to four new plays” in oil in the coming decade, following North Dakota’s booming Bakken oil shale, where producers are already short of pipeline take-away capacity.
Howard Gruenspecht, Acting Administrator of the Energy Information Administration, said oil shales are the “wild card” in EIA forecasts for the US – and further out, for the rest of the world. The EIA predicts that, even without shale surprises like the Bakken, US petroleum consumption is dropping and production is on an upswing, leading to decreasing imports.
Breaking Energy spoke with Howard Gruensprecht in September 2011 about the prospects for his agency as well as the industry. Watch the video interview here.
Diwan said the industry is already on the move. Major oil companies until recently made profits in the US and invested the money in oil prospects elsewhere, but that trend is reversing. Profits from overseas operations are now being invested in US oil and gas fields, and he predicted “a new golden era in the oil patch.”
Photo Caption: U.S. Rep. Ed Markey (D-MA) (L) stands up as he wait for his turn to speak during a hearing on the Keystone XL pipeline before the Energy and Power Subcommittee of the House Energy and Commerce Committee February 3, 2012 on Capitol Hill in Washington, DC. Rep. Markey said he and other House Democrats were introducing a bill to ensure that the oil and the refined fuel from the Keystone XL pipeline project will be sold in the U.S.