CALGARY - Even though the United States is producing more and more of its own oil, refineries along the U.S. Gulf Coast will remain thirsty for Canadian crude, says a report from economics firm IHS CERA.
Production has been booming in regions such as North Dakota's Bakken oil and gas play, causing some to wonder whether the U.S. will become energy independent, forcing Canadian exports to find another home.
IHS CERA says some 2.2 million barrels per day flowed out of so-called tight reservoirs in the U.S. in 2012, surpassing current oilsands production of 1.7 million barrels.
The boom has come about thanks to recent advances in extraction techniques, such as drilling long wells horizontally through the rock and breaking it open using hydraulic fracturing or "fracking" methods.
However, IHS says U.S. tight oil only has the potential to supplant about one third of U.S. net oil imports by the end of the decade, assuming flat demand and declining conventional supply.
Differences in the quality of oilsands crude versus tight oil are also an important part of the equation.
Bakken oil is light and sweet — the type refineries along the Eastern Seaboard are configured to handle. In the past, about half of the oilsands supply was upgraded to be on par with light oil.
But now that processed oilsands crude, called synthetic crude oil, is now competing head-to-head with tight oil. As a result, IHS says most future oilsands supply will be in the form of heavy bitumen blends.
Given that dynamic, the potential for oilsands market expansion in the eastern part of the continent is "limited," IHS says.
That makes the U.S. Gulf Coast — with 2.4 million barrels per day of heavy processing capacity — the best destination for oilsands crude in the future, as the U.S. looks to displace declining heavy crude imports from Mexico and Venezuela.
"Far from being an either/or proposition, the Canadian oilsands and U.S. tight oil are both important sources of U.S. oil supplies for the foreseeable future," said IHS vice chairman Daniel Yergin.
"Tight oil is not a replacement for oilsands in the U.S., but the development is altering the opportunity for oilsands."
TransCanada Corp.'s (TSX:TRP) controversial proposed Keystone XL pipeline is meant to bring more Alberta crude to Texas refineries. Construction is underway on a portion between an oversupplied storage hub at Cushing, Okla., to the Gulf. The company hopes to win a long-awaited federal permit for the northern leg, from the Canadian border to Nebraska, in the coming weeks.
Rival Canadian pipeline giant Enbridge Inc. (TSX:ENB) also has its sights set on the Gulf Coast. Earlier this year, Enbridge and partner Enterprise Products Partners reversed the flow of the Seaway pipeline between Cushing and Gulf, and last week expanded its capacity from 150,000 to 400,000 barrels per day. Plans are in the works to more than double its size next year.
California also holds huge potential as an oilsands market. Some 90 per cent of its refining capacity is geared toward heavier crudes, with market potential exceeding 700,000 barrels per day, IHS says.
But there are big hurdles in the way of more oilsands crude heading to California. Pipeline proposals to Canada's West Coast are the subject of fierce opposition across British Columbia. There are concerns a spill from the line itself, or from tankers along the coast, could have dire environmental consequences.
California's low-carbon fuel standard could also penalize oilsands-derived fuels.