Independence Day – U.S. & Canada crude oil self-sufficient in 5 years?

On Monday I spoke at the Canadian Energy Research Institute’s (CERI) Crude Oil Conference in Calgary, Alberta.  Presentation title: The Looming Imbalance - Supply/Demand Implications of the Shale Oil Revolution.  Like most oil conferences these days, it was very well attended and included some high profile Canadian energy luminaries like Joe Oliver, Canada’s Minister of Natural Resources.  As you might expect, this was a crowd very friendly to oil producers in general, and to oil sands production specifically.  Have no doubt that Canada is going to increase production from oil sands by at least 1 MMb/d over the next 5 years whether the barrels come to the U.S, or not.  It is a “national imperative”.

The U.S. gets about 2 MMb/d of Canadian imports already.  Canada is the largest supplier of crude to the U.S., and has single-handedly exceeded total imports from all (yes, All) Persian Gulf countries for three years.  Canada provides just under 30% of U.S. crude imports today.  Assuming that Keystone XL or some other new pipeline capacity crossing the border gets built after the U.S. Fall election, most of the additional 1 MMb/d will also come to the U.S. 

What happens next in Washington, and when Canada gets pipelines and new British Columbia export facilities built are big, open questions.  But for this exercise let’s assume essentially all of these barrels come to the U.S. on some pipeline – the most likely scenario for the next 5 years or so.  That would get Canada up to 40% of U.S. imports assuming no change in the level of imports.  But that’s a bad assumption. Because the percentage of U.S. oil supplies provided by imports is dropping like a rock.  A shale rock.  

A few weeks back we talked in You're doin' fine, Oklahoma! about the Bentek forecast of 2.2 MMb/d of additional U.S. light-sweet crude oil supplies from tight oil (a.k.a., shale oil) not including the potential of a drop from Utica. About the same time  Raymond James trumped that forecast with their own, projecting an additional 3.5 MMb/d.  Either way, it is a big number.

So imports from Canada up.  U.S. production way up.  How about demand?  Not up.  Instead – Down.  Refinery demand for crude oil in both the U.S. and Canada is expected to decline slightly over the next few years due to fuel efficiency in the transportation sector and increasing use of renewables.

As supply increases and demand declines, something has to give – and that is offshore imports. That was the basic message of my presentation at the CERI conference.  Not only will offshore imports give. They will give it up.  And it won’t take that long for it to happen.  I’ve attached a few of the closing slides from the presentation deck.  You can download the slides in PDF format below.   Here are the high points:

Canada + U.S. Crude Self Sufficient?

So what would it take for the U.S. and Canada together to achieve total energy independence from the rest of the world?

First we need to define what we mean by energy independence.  We already are independent from the perspective of natural gas and coal, so the only real issue is liquid hydrocarbons – crude oil and petroleum products. 

For crude oil we’ll define energy independence as self sufficiency - the point at which the combined waterborne crude oil imports of the U.S. and Canada goes to zero.

Or zero after we take into account any offsetting export.  So if we bring in 1,000 barrels of offshore imports but we move 1,000 barrels of offshore exports back out, we’ll exclude those volumes from the equation – because the imports are not for our own use.

And there are three other assumptions baked in to the balance numbers:

1) We assume that logistical requirements of some U.S and Canadian coastal refineries will require imports of waterborne cargos, but rail volumes into these markets will grow significantly

2) We assume that essentially all incremental Canadian production is imported to U.S.  Pipeline projects to move significant barrels to export terminals in British Columbia don’t happen until sometime after 2017.

3) We assumes that total U.S. + Canadian refinery crude runs will decrease by about 0.5%/year due to transportation fleet efficiencies and increased renewables in motor gasoline

Canada + U.S. Self Sufficient in 2017

Barrels that continue to be imported will be offset by net exports of crude (from Canada) or petroleum products (from the U.S.)

So we can net those out of the equation, and since Canada is self-sufficient anyway, we can look at the transition to self-sufficiency from the U.S. side of the border. 

And this is the bottom line.  Based on (1) a U.S. production outlook between that of Bentek and Raymond James, plus (2) an additional 1 MMb/d from Canada and (3) with lower demand from both countries, the U.S. and Canada combined will achieve crude oil self-sufficiency in 2017.  U.S. demand will be met entirely by U.S. production and imports from Canada.  Canada will meet its own requirements.

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