Gulf Coast refineries in Texas and beyond need new oil pipelines from Canada to cut down on their supply costs, a new report Tuesday from the IHS Markit research firm concludes.
Western Canada is projected to increase its crude oil sands production by nearly 1 million barrels a day by 2020, putting increased pressure on an already constrained pipeline system, and forcing more oil to be transported by rail unless new pipelines come online, the report contends.
Most Gulf Coast refineries rely on heavier crude oil — as opposed to just the lighter oil produced in Texas — and must turn to more expensive Latin American oil from countries like Mexico and Venezuela. More pipeline capacity for Canadian oil would ease their cost and supply burdens.
“The need for new pipelines departing Western Canada has not diminished with lower oil prices, quite the opposite,” said Kevin Birn, energy director for IHS Markit. “Canada remains a growth story with production volumes increasing since the oil price collapse. And with continued growth it appears inevitable that volumes will overtake an already-constrained system and create a resurgence of crude-by-rail.”
The report specifically cited four pipeline projects that are progressing but are years away from completion. Potentially funneling oil to the Gulf Coast are the resurrected Keystone XL pipeline from TransCanada that would travel through Nebraska and hook up with existing pipelines to carry oil to Texas, as well as Enbridge’s Alberta Clipper expansion from Canada to Wisconsin. Enbridge’s network would flow oil all the way down to Freeport.
Other pending projects include Houston-based Kinder Morgan’s TransMountain pipeline to take oil from Alberta to the West Coast near Vancouver for exports, as well as TransCanada’s Energy East pipeline to Canada’s East Coast. Kinder Morgan could announce a joint venture funding partner any day now.
Until these projects become a reality, if they ever do, a resurgence of crude-by-rail shipments out of Western Canada is likely to occur through the end of the decade, the report concludes. Although environmentalists hate the crude pipeline projects, the transportation by rail is considered more dangerous and environmentally hazardous.
Also, the rail transportation makes the oil more expensive and less plentiful for Gulf Coast refiners.
If the four major pipeline projects advance, they’d add 2.9 million barrels per day of new capacity between 2019 and 2022, enough to move Western Canada’s pipeline capacity from shortage to surplus.