Canadian heavy crude is pouring into Texas Gulf Coast refineries, topping U.S. imports of Venezuelan oil for the first time ever in a market billed as key to expanding oil sands production.
Imports of Canadian oil to the region averaged 463,000 barrels a day in January, the latest U.S. government data show. That compares with 455,000 b/d from Venezuela, long a dominant supplier to the refining hub.
It’s a major reversal that reflects a deepening humanitarian and economic crisis in the South American exporter and member of the Organization of Petroleum Exporting Countries. Venezuela’s production has languished owing to underinvestment and mismanagement at its state-run oil company, Petroleos de Venezuela SA.
Yet it also presents opportunities to expand market share for Canada’s battered energy industry, which has struggled for years with hefty price dislocation due to chronic pipeline shortages, said Michael Tran, energy strategist at Royal Bank of Canada.
“This is a classic example of winning by simply not losing,” he said by e-mail.
“At a minimum, the demise of Venezuelan oil production presents the greatest opportunity in years for Canadian crude to expand its presence by winning low-hanging market share in the Gulf.”
Oil sands producers have sought a bigger slice of the key U.S. market for years, eager to deliver crude to big refineries operated by Exxon Mobil Corp. and Valero Energy Corp. that are geared to process the extra-thick oil.
But industry efforts to pitch the Canadian sector as a reliable alternative to Venezuela and Mexico have been hampered by protracted delays to proposed pipelines such as Keystone XL.
The US$8-billion TransCanada Corp. project remains a magnet for opposition and litigation even after clearing regulatory hurdles in Nebraska late last year.
And TransCanada itself has yet to commit to building the 830,000 b/d line, which would send crude from Hardisty, Alta., through Steele City, Neb., to the Texas Gulf, home to nearly half of total U.S. refining capacity.
Despite shipping constraints, GMP FirstEnergy analyst Martin King said there’s potential for Canada to increase exports by another 150,000 to 200,000 b/d to the Gulf as Venezuelan production falters, with rail shipments playing an increasing role.
“It’s an opportunity for Canada in the sense that we can continue to capture more of that market share in the U.S.,” he said by phone. “We just have to make sure we can get it down there.”
This year, Western Canadian select’s discount to West Texas intermediate, the U.S. benchmark oil price, has swelled to more than US$30 as fast-growing production eclipses available pipeline space. That has forced some producers to dial back output.
Last month, Cenovus Energy Inc. cut production and said it may speed up maintenance work at its oil sands plants to cope. Canadian Natural Resources Ltd. has also slowed some heavy-oil production, while Suncor Energy Inc.’s Syncrude mine is running at lower rates.
The moves have helped buoy prices, with barrels of extra-heavy oil sands crude for May delivery fetching US$15.80 under WTI on Wednesday, according to broker Net Energy Inc.
Data provider Genscape Inc. has also cited an uptick in crude-by-rail shipments from Canada, with March loadings approaching 120,000 b/d.
Still, that’s well short of overall capacity, reflecting a lack of locomotives needed to move supplies to market. Some analysts cautioned the price relief was temporary, and pipelines could fill up again as volumes come back online.
“We have seen some similar moves in the past couple of months, just to have things widen out again,” Mr. King said.