CALGARY — A confluence of political and economic factors south of the border underscores the need for Canada to diversify its energy export markets, an Enbridge Inc. executive said Wednesday.
“The U.S. has diverse supply options. They can source a barrel of crude from anywhere on Earth. And Canada has one market, one customer, which is the United States,” Steve Wuori, who oversees liquids pipelines at Enbridge told a Calgary luncheon.
Enbridge aims to build a 1,172-kilometre crude oil pipeline between Alberta and the West Coast called Northern Gateway. The proposal has been met with fierce opposition from aboriginal and environmental groups who fear a pipeline leak could foul rivers and coastal waters.
At the port of Kitimat, B.C., crude would be loaded onto tankers for export, mainly to Asian buyers. Opening up that fast-growing market to Canadian crude supplies is crucial, Wuori said.
Demand for crude oil in the United States peaked between 2005 and 2007, and has been dropping ever since, he said.
U.S. refiners have long looked to Canada for a low-cost source of crude, but that dynamic has its drawbacks.
“There’s two sides to low cost,” Wuori said. “When you’re the buyer, it feels one way, and when you’re the seller, it feels another way.”
Northern Gateway would add a $2 to $3 to the value of Canadian crude, just by virtue of it being able to access more than one buyer, he said.
In recent years, many refineries have been retrofitted to handle Canadian heavy crude, but there aren’t any more of those projects on tap.
“You aren’t seeing any new announcements about new conversion capacity that’s being invested in, and so there’s a warning bell for the Canadian heavy barrel that is moving into that market,” Wuori said.
Meanwhile, U.S. domestic production has been rising. Output from the North Dakota Bakken formation has been “absolutely astounding,” and prospects in Texas and Colorado look promising, too.
U.S. efforts to add more corn-derived fuel into the U.S. energy mix and use more natural gas-fired vehicles are also pushing Canadian barrels out of the United States.
And then there is the vocal opposition south of the border to development of the oilsands, often referred to as “tar sands” by critics.
There has been an effect from “this idea that tar sands crude will jump out and get you.
“There’s something bad about it, toxic, and so on,” Wuori said.
That said, Wuori — a U.S. citizen himself — sees the United States as an important market for Canadian crude well into the future.
A proposal by Enbridge rival TransCanada Corp. (TSX:TRP) to expand and extend its Keystone system to the U.S. Gulf Coast has also been the subject of environmental criticism. The U.S. State Department is in the process of reviewing the Keystone XL proposal, and is expected to make its decision later this year.
“It is not our project. It competes with us,” Wuori said.
“However, we are in favour of them receiving their Presidential Permit. I want to be very clear about that, because if they don’t it’s for all the wrong reasons.”