Canadian refineries taking more U.S. crude

Canadian refineries are importing U.S. oil at a soaring rate, bringing in crude at four times historic levels as booming shale production continues to reshape the world oil market.

Refineries in eastern Canada took in an average of 100,000 barrels a day of crude from the United States in the first three months of the year, up from a historic average of around 24,000 barrels a day, the U.S. Energy Information Administration reported this week.

Refineries throughout North America are increasingly finding alternatives to more expensive crude from overseas producers in the North Sea, Africa and the Middle East.

“There’s no point in a Canadian refinery buying a barrel of oil from West Africa or farther, if they can get if from the United States” for less money, said Amy Myers Jaffe, executive director energy and sustainability at the University of California, Davis.

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Valero Energy Corp., which operates a refinery in Quebec with a capacity of 265,000 barrels per day, is aggressively exploring efforts to switch from crude imported from overseas to cheaper oil from North America, spokesman Bill Day said.

The company has a license from the U.S. Department of Energy to ship a maximum of 90,000 barrels per day of crude produced from the Eagle Ford shale to the Quebec refinery, Day said.

San Antonio-based Valero, the continent’s largest independent refiner, has so far only sent one shipment of crude to Canada as part of a test. The test proved the refinery could process Eagle Ford barrels “very well,” Day said.

All of the Quebec refinery’s crude has previously come from overseas producers, though Valero is planning to change its sourcing, Day said.

“We’re trying to completely displace expensive crude,” he said. “Right now, foreign crude is more expensive than North American crude and we perceive that will be the case at least for the foreseeable future.”

Changes at Canadian refineries, as well as at others in North America, are affecting overseas producers and world oil markets, said Jeff Dietert, head of research at Simmons & Company International.

“All of those crudes are being backed out of the U.S. import market and they’re being forced to be discounted and shipped in large part eastward into the Asian markets,” Dietert said.

More American oil has also moved northward to Canada at a time when a surge of Canadian oil is also moving south to U.S. refineries. That is because the crudes are of different qualities that need to be handled by specific refineries, Dietert said.

Refineries along the U.S. Gulf Coast, for example, have the ability to turn large quantities of crude from Canadian oil sands into gasoline, diesel and other products.

But refineries elsewhere, like in eastern Canada, are more suited for lighter crudes, like the kinds that have been produced from shale plays across the United States and in western Canada.

Soaring production of oil from North American shale plays, coming at the same time as producers are ramping up oil sands output, is leading to changes to help move different crudes within the United States.

Pipeline companies like Enbridge, of Canada, are making changes that will move more of the cheaper light crude from oil sources on the western part of the continent to refineries in eastern Canada. That change that will likely lead to even more displacement of overseas imports, the Energy Information Administration said.

Though Canada has historically imported oil from wells in the midwestern United States, Canada is now pulling in crude from farther south, with some of it coming by rail, the agency said.

A large portion of the Canadian imports are coming from Texas, where oil production has shot up from around 1 million barrels per day throughout the last decade to just over 2 million barrels per day in 2012, according to the EIA.

With North American refiners looking increasingly inside the continent for their crude, overseas oil producers are likely to face lasting challenges to sell into the United States and Canada, Jaffe said.

“I think what you’re going to find is its not a temporary thing,” she said. “The only thing that would make it temporary is if Canada itself, on the east coast, found its own light sweet crude oil from shale and then they wouldn’t need it form the United States.”