Argus Live: Canadian crude to grow global status

A quick recovery in Canadian crude production this year will put oil sands operators in position to capture more market share in the US Gulf coast and beyond.

There is a significant opportunity for Canada to fill the gap from declines from Mexico and Venezuela in the longer term, Enbridge senior vice-president Phil Anderson said at the Argus Crude Live virtual conference today.

Enbridge is preparing for about 1mn b/d of growth in Canada's oil sands production over the next five to ten years, with much of that coming from additions to existing bitumen projects. The Calgary-based pipeline company has plans for takeaway capacity that could accommodate nearly half of this, on top of their Line 3 Replacement Project that is to be commissioned later this year.

But the main strategy for Enbridge is not to lay new pipe, but to work with what they already have.

Enbridge is eyeing 200,000 b/d of additional capacity on its 3mn b/d Mainline system, another 100,000 b/d on Express pipeline, as well as utilizing another pipeline that currently imports diluent from the US into Canada.

"We could re-reverse [Southern Lights], put it back into crude service if additional egress is required," Anderson said. That move would give another 150,000 b/d of heavy crude capacity out of Canada.

In the near-term, Enbridge anticipates that the market will see output rise by 600,000 b/d in 2021 compared to October, with Canadian supply approaching 5mn b/d. Both deferred growth projects and the removal of Alberta's quota system in December are giving producers like Cenovus a clear path to increasing heavy crude output.

The industry has been challenged by a lack of market access and low prices even before the pandemic, Cenovus executive vice-president Norrie Ramsay said.

"It's been a complete rollercoaster," Ramsay said, but added that he anticipates a recovery in crude markets by the end of this year and into 2022. "Canadian oil and gas is well positioned to meet this demand."

Canada's ranking in environmental, social and governance pursuits also give oil sands crude a leg up on countries with lower standards as extraction comes under increasing scrutiny. Ramsay said as long as demand exists, it's their job to ensure Canada is "the preferred barrel" going forward. Anderson agreed this could become a big advantage, particularly in stringent jurisdictions on the west coast like California.

Beyond the US, Enbridge is seeing Canadian heavy crude grow from a North American commodity to a global commodity, reaching 300,000 b/d of exports by 2030. Getting production to market is just one part of the equation and Enbridge is also seeing an increase in market participants with a desire to achieve specific qualities.

"We are getting a lot of incremental interest around blending the crude into other grades," said Anderson. "So that's something we see growing going forward, especially as export demand picks up."

Enbridge is paying very close attention to the Dakota Access Pipeline, Anderson said, specifically to the prospect of a government retroactively trying to pull permits, and noting that the political landscape is changing. "We're [also] seeing states step into what would be traditionally a federal regulatory arena in terms of telling us what the standards are to operate a pipeline. We spend an enormous amount of time on that."

By Brett Holmes