Gulf Coast refineries may soon see a boost in crude volumes arriving at their doorstep, as Canadian oil sands production finally ramps up, Chicago investment research firm Morningstar said in a report released Tuesday.
Production of heavy oil from western Canada’s oil sands is rising as projects — many started long before the two-year-old oil price crash — come online this year. The Canadian Energy Research Institute expects production to increase by 595,000 barrels per day this year and by another 203,000 per day next.
Midwest refiners had built capacity to handle more heavy Canadian crude, but are now maxed out, writes Morningstar analyst Sandy Fielden. The U.S. Gulf Coast is the “most obvious market” for the rest of the northern oil, he said. Gulf refineries already process heavy crude similar in quality to Canadian barrels.
Canadian crude should also dip in price, Fielden said, as pipelines picking up oil in Alberta fill up and companies resort to more expensive rail transportation.
Despite the boom in light shale oil, imports of heavy crude to the Gulf Coast dipped an average of just 200,000 barrels per day last year or 8 percent from their peak of 2.4 million barrels per day in 2010, according to the U.S. Energy Information Administration.
Most of the refineries in Texas and Louisiana, Fielden noted, are configured to process heavy crude that is not produced in the U.S.