CALGARY, Feb. 6, 2013 /CNW/ - A lot of attention has been directed towards the supply of Canadian oil to the Pacific coast in recent months. But is there actually demand for this oil? Increased capacity brought about by Northern Gateway and the Trans Mountain expansion is only worthwhile if there are markets for this oil.
Measuring the demand for Western Canadian crude is the focus of a report published today by The School of Public Policy and authored by Michal Moore, Jennifer Winter, David Hackett, Leigh Noda and Susan Grissom. The authors survey oil markets that are accessible from Canada's Pacific coast to identify which markets actually have the capacity to refine what could be an additional 1.1 million barrels per day in Canadian production.
"Canadian heavy oil requires more refining and produces less valuable end products," the authors write. "Producers must compete with lighter, sweeter oils from the Middle East, and elsewhere, for a place in the Pacific Basin refineries built to handle heavy crude blends."
The authors' analysis reveals that only the Pacific Basin, particularly China and Korea, has the capability to match the surge in Canadian supply. However, they also argue that some modifications may be needed to these refineries in order to compensate for the physical characteristics and yield pattern of Western Canadian Select and other oil sands products. This raises a much larger issue that should be made a policy priority for business and government in Canada, the authors argue.
Because Canada is competing for a place in Pacific Basin refineries against other producing markets that have lighter and sweeter crude, it must move swiftly to prove that it can in fact supply the oil it says it can. Otherwise, countries like China and Korea will not want to invest in upgrading their refineries.
The authors argue that Canada must act now to secure long-term agreements to supply these refineries and that these promises must be back up by evidence of adequate transportation capacity. The pipeline approval process is crucial to these agreements being signed. If Canada does not approve proposed expansions, or takes too long to do so, countries like China and Korea will look elsewhere.
The report can be found at www.policyschool.ucalgary.ca/publications
SOURCE: The School of Public Policy - University of Calgary
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