More Canadian heavy crude US-bound

Heavy Canadian crude shipments to the US are set to rise as more pipeline expansions come on stream and oil sands output climbs above pre-Covid levels.

Pipeline capacity to ship heavy crude from Canada to the US is scheduled to rise by at least 420,000 b/d this year. The expansions are expected to increase Canadian heavy crude's market share in the US Gulf coast refining hub and could lead to higher heavy sour crude exports. Canadian crude accounted for close to 56pc of all US imports in March.

And oil sands output has rebounded. Heavy crude production from oil sands projects involving steam extraction rose to a record 1.7mn b/d in March, 160,000 b/d higher than in the same month last year, according to the Alberta Energy Regulator. Alberta's oil production rose to 3.6mn b/d in March, about 50,000 b/d higher than February and 40,000 b/d up on March last year. Oil sands production made up the bulk of the increase, averaging 3.1mn b/d (see graph).

The largest boost to export capacity will come from Enbridge's Line 3 replacement project, which will increase capacity from western Canada to the US midcontinent by 370,000 b/d. Enbridge has completed about 60pc of the work in Minnesota and the line is on track to start up in the fourth quarter, chief executive Al Monaco says. The project will expand Line 3 capacity from Alberta to Wisconsin to 760,000 b/d from 390,000 b/d and will enable Enbridge to capitalise on growing heavy crude demand amid a declining global heavy supply outlook, Monaco says. The nearly 700km Minnesota segment is the last section needed to complete the project, but regulatory and legal issues have delayed progress. Opponents are suing to stop the expansion and the Minnesota Court of Appeals heard arguments in March on a challenge to the state's approval.

Producers expect the expansion to provide substantial relief to pipeline congestion. Enbridge needed to reject 52pc of requests for space on its two largest heavy crude lines for June, representing just over half of its near 3mn b/d Mainline system. Enbridge has had to reject on average 47pc of all nominations for capacity on the lines in the first six months of this year. The rejections should drop to 10pc once Line 3 comes into service, Canadian producer MEG Energy says.

Congestion has led MEG to revise down its expected Canadian crude sales to the US Gulf coast for 2021. Volumes on the BP 2 crude pipeline in Indiana should increase by 10pc towards the end of 2021 when the Line 3 expansion goes into service, BP Midstream says. The BP 2 line moves crude from the Griffith terminal in Indiana to BP's 430,000 b/d Whiting refinery.

Expansion plans Enbridge is also boosting capacity on its 280,000 b/d Express crude pipeline from Hardisty, Alberta, to Casper, Wyoming. The firm plans to complete the second phase of the 50,000 b/d expansion in the second quarter. The line connects to the Platte system, which moves crude from Casper to Wood River, Illinois.

Enbridge boosted capacity on the Mainline system by 100,000 b/d in 2019 and is considering further increases. The company told investors in December that it has the option to increase Mainline capacity by another 200,000 b/d and to expand other lines including Flanagan South, from Flanagan, Illinois, to Cushing, Oklahoma, the Southern Access extension from Flanagan to Patoka in Illinois, and the Seaway pipeline from Cushing to the Houston area. Enbridge is also weighing a plan to reverse its 180,000 b/d Southern Lights pipeline from Illinois to Alberta to add more southbound capacity. Midstream firm TC Energy was planning a 50,000 b/d expansion of its Keystone pipeline system from Hardisty to Patoka, but says it does "not have a timeline to share" on any increase in capacity.

By Brett Holmes and Eunice Bridges

Alberta oil production

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