Alberta Doubles Down on U.S. Oil Exports

 Keystone XL might be back on the table

By Irina Slav - Nov 18, 2024

Canada is the biggest supplier of heavy crude oil to U.S. refiners.

Alberta’s government is in talks with energy infrastructure majors to construct more oil pipelines to the United States.

The Canadian oil industry is not particularly worried about the prospect of tariffs



When the expanded Trans Mountain pipeline came online earlier this year, some media reported U.S. refiners should start worrying about the supply of Canadian crude. With a bigger TMX, Canada could now export overseas. Yet now, with a pro-oil administration coming in, Canada’s top oil-producing province is looking south again.

Alberta’s government is in talks with energy infrastructure majors to construct more oil pipelines to the United States, the premier of the province told Bloomberg in a recent interview.

“I know the Americans have increased production pretty dramatically in the last 10 years, but it might not always be that way,” Smith told the publication, adding, “They need to know that if they’re looking for additional supply, they shouldn’t be looking to Iran or Venezuela. They should be looking to their friend up north.”

Indeed, Canada is the biggest supplier of heavy crude oil to U.S. refiners who need to blend it with local light crude to produce fuels. U.S. crude is predominantly light and sweet, which refiners cannot process on its own—and it’s getting lighter and sweeter, which might become a problem down the road. The solution to that problem would be more Canadian heavy.

Canada’s energy exports to the United States two years ago were worth close to $160 billion—most of that in the form of crude oil, refined products, and natural gas. A year later, crude oil exports alone hit a record of some 4 million barrels daily. Of those, 97% went to the U.S., the Canada Energy Regulator reported earlier this year. Speaking of this year, Canadian crude oil exports south of the border broke last year’s record to reach 4.3 million barrels daily in July, the most recent month, for which the Energy Information Administration has factual numbers.

“Since TMX came online in May, early data indicate that refiners on the U.S. West Coast have been key buyers of the new export volumes,” the EIA said in its report on Canadian oil imports. “Between June and September, the U.S. West Coast accounted for just over half of all maritime crude oil exports out of Western Canada, with the rest going to destinations in Asia, according to data from Vortexa Analytics,” the EIA also said.

So, it appears U.S. refiners had nothing to worry about really because even with the Trans Mountain pipeline with tripled capacity, most of Alberta’s heavy crude is going to them as the closest destination for the crude—and as alternative supply options remain challenging due to factors such as distance and sanctions. No wonder, then, that Alberta’s government wants to increase the flow of oil south.

Some observers point out Trump's tariff promise as a potential problem in this respect. “The one thing that's the big cloud that's hanging over in terms of uncertainty is Trump's proposed tax on all imports, anything between 10 to 20 per cent,” Al Salazar, head of macro oil and gas research at Enverus, told CBC. “It kind of doesn't make sense to tax crude imports into the U.S. because that's going to push up gasoline prices and be inflationary for U.S. citizens. But on the other hand … in terms of supply chain, that is really concerning.”

Reuters, however, reported last week that the Canadian oil industry is not particularly worried about the prospect of tariffs—because it is the biggest supplier of heavy crude to the U.S. and because of those abovementioned problems with potential alternative suppliers.

"If you were to slap on a bunch of tariffs for Canadian oil, it's not like there's an alternative readily available,” BMP Capital Markets analyst Jeremy McCrea told the publication. Other analysts agree that the chances of Trump taking his tariff promise literally and imposing import levies on every single commodity entering the U.S. were rather limited.

On the other hand, Trump may take action on a pipeline project that President Biden killed as soon as he entered office in 2020: Keystone XL. Dubbed unnecessary by the pro-transition Democratic federal government, whose term ends in January, the pipeline could significantly increase Canadian crude flows to the U.S. if built. And with Trump in the White House, it might get built.

“I think Keystone XL might be back on the table. It’s all about providing cost-effective energy,” the president of oil producer Ensign Energy Services told the Calgary Herald’s Chris Varcoe. “I don’t think they will hit Canadian oil and gas (with a tariff) … He won’t want to increase the cost of energy coming into the U.S,” Bob Geddes added.

So, it seems there is a will to boost the flow of Canadian crude oil to U.S. refiners on both sides of the border. There is a way as well, with an industry-friendly administration in office. Now, the big problem that remains for Albertan oil producers is how to respond to the planned 35% emission cut mandate that the Trudeau government announced earlier this month.

By Irina Slav for Oilprice.com