Another final decision by the federal government on whether or not to approve the Trans Mountain Pipeline expansion will happen tomorrow, June 18th, 2019.
In response to the National Energy Board’s second approval of the Trans Mountain expansion earlier this year, anti-pipeline groups have stepped up their attacks on the project, questioning its safety and the economic benefits it will bring – if any.
Another from environmentalists was the suggestion that there is no demand for Alberta oil sands in Asian markets whatsoever. To add, a former federal environment minister recently said there is no credible evidence to suggest that demand for Canadian heavy crude oil is alive and well across the pacific.
But just how true are these claims? Is there a demand for Alberta oil sands in China, South Korea and other Asian countries? Let us take a look at the world's second largest oil consumer to get an idea.
Global Heavy Oil Demand, 2009 - 2018
Source: IHS Markit
IHS Markit's chart shows a dramatic increase in demand for heavy oil in Asia.
As a matter of fact, about one-third of the $1.4 billion-worth of crude oil exports through Vancouver in 2018 were sent to China.
Summary of data collected by BiV.com on crude oil shipments out of the Port of Vancouver:
-
7.5 million barrels of Alberta crude oil shipped to Asia worth a total of $539 million
- 6.3 million barrels went to China - $442 million worth
- 648,000 barrels to South Korea - $51 million
- 508,000 barrels to Hong Kong - $46 million
- A small amount to Thailand
No Demand for Canadian Heavy Crude Oil?
Anti-pipeline groups argue there is no demand for Alberta crude oil in Asia, that the Trans Mountain Pipeline expansion from an economic stand point just doesn’t make sense.
It may seem that way given Chinese buyers snatched up a record amount of crude when the Western Canadian Select (WCS) and Western Texas Intermediate (WTI) price differential was at a record-high last year.
That period in 2018 is of course what made it a record-year for oil shipments to China from Vancouver. To add, data sourced from Statistics Canada shows that during the first quarter of 2019 China didn’t buy any oil whatsoever through the Port of Vancouver.
These two facts seem to suggest that China, the world’s fifth largest producer of oil, only buys from Canada when the price is right.
So the question remains: if there were expanded capacity for the Trans Mountain Pipeline expansion, would China buy Alberta oil?
Recent data shows that the demand for Canadian heavy crude oil in Asia is alive and well.
Alberta Oil Making its Way to Asia
Historically, before the low-price rush of 2018, it was unusual for Asian buyers to book so many shipments of Canadian crude.
But regardless if through the Port of Vancouver or not, Alberta oil has been making its way to Asia via the Gulf Coast.
Just this month, Canadian heavy crude was being exported from the U.S. with over 130,000 barrels per day scheduled to leave Texas for world markets.
Furthermore, on June 16th the tanker New Dream departed from Galveston loaded with over 1 million barrels of Canadian heavy crude. The vessel, registered to Hong Kong, is sailing to Asia.
Sources say that by June 30th, another 3 million barrels of Canadian heavy crude is due for export from the Gulf Coast.
Where the trip will end for these barrels isn’t certain. An educated guess would point towards energy hungry markets across the pacific.
In mid-June, there was also an oil tanker from South Korea in Vancouver's English Bay:
Enjoying the view of English Bay tonight? It includes this crude oil tanker from South Korea. Not to worry - some arts graduates say there is never going to be a hydrocarbon trade with Asia. pic.twitter.com/J30AUUQrH1
— Stewart Muir (@sjmuir) June 18, 2019
Global Events Creating Demand for Alberta Oil
Today, several occurrences across the globe are pointing towards an increase in demand for heavy crude oil from Canada. Some below:
Causation for a spike in demand:
> Unsteady supply of heavy crude from Venezuela – dropping to >1 million bpd - a country in severe social and political unrest and on the verge of economic collapse
> U.S. refineries which are set up to handle heavy crude oil from Alberta are as thirsty as ever as sanctions on Venezuelan oil come full circle
> Dropping oil production in Mexico and plans by the new president, Andrés Manuel López Obrador, to restrict exports and refine oil within the country to fulfill domestic needs
> Increasing heavy oil refining capacity in China (more below)
By the end of 2019, rail shipments of Canadian heavy crude oil to the U.S. are expected to hit record highs in attempt by Gulf Coast refineries to “fill the gap” left by sanctions on Venezuelan oil.
Meanwhile, smaller heavy oil producers like Colombia and Ecuador cannot pump enough to make up for the shortfall in global demand, all the while refining capacity in China is set to increase significantly by 2023.
Chinese Refining Capacity on the Rise
Source: GlobalData
A recent report by GlobalData suggests China will account for 44% of Asia’s crude oil refining capacity by 2023. Summary of growing refining capabilities (in bpd):
- 15,994,000 – total bpd refining capacity in 2018, 46% of Asia’s total refining capacity
- 4.5% - average annual growth rate (AAGR) to 20,035,000 bpd in 2023
- 3,721,000 – expected planned / announced crude oil refining capacity by 2023, up from 460,000 bpd in 2018
- 2,371,000 – total coking capacity in 2023, up from 1,991,000 bpd in 2018
- 5,532,000 – total catalytic cracker unit capacity in 2023, up from 4,359,000 bpd in 2018
- 2,922,000 – total hydrocracking unit capacity
Growing heavy oil refining capacity in China is one reason why the country is snatching up all it can get, often at a premium price over lighter crudes. Consider prices from oilprice.com on June 18th, 2019:
- Mexican Maya - $51.83
- Western Canadian Select (WCS) - $40.93
- Western Texas Intermediate (WTI) - $54.00
While Mexican Maya’s heavy sour crude sells to the “far east” for nearly USD $11 more than WCS, Canada continues to drag its feet in getting new pipeline capacity to tide water built.
This would increase export capacity to international markets and allow Canadians to get a better price for their oil.
Canada Should Be the One to Meet Global Demand
Source: BP Energy Outlook 2018
According to energy outlooks from BP, IEA and EIA, by 2040 oil will still account for nearly a third of world energy demand. Furthermore, consumption will also be up by millions of barrels from what it is today.
Consumption of natural gas is also expected to increase by 45% as the developing world fills its insatiable need for consistent and reliable energy sources. Major population centres of the world such as India and China are set to fuel that growth.
As one of the most transparent, regulated and environmentally-friendly producers in the world, Canada should be the one to meet the growing global demand for oil and natural gas.
Canada’s petroleum producers are leaders in innovation and green technology. They are constantly working to reduce domestic greenhouse gas emissions from the production of oil and gas, benefiting the global environment.
As the only top 10 oil exporter with carbon pricing (since 2007), Canada should be the last producer out of the pool when oil demand eventually does run out in several decades’ time.
Source: IEA
Given Canada’s excellent environmental, labour and human rights record when it comes to producing oil and gas, why should it not be allowed to have a fair share of growing global market demand for petroleum?
Once again, environmentalists continue to suggest that there is no market across the pacific for Alberta heavy oil. The facts show otherwise, showing demand for Alberta oil sands in Asia and the United States is very much alive and well.
Now if we can only get the Trans Mountain Pipeline expansion built! Let it not be the first new tidewater pipeline or last to be built in Canada!
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