Mario ToneguzziA new report released on Tuesday by IHS Markit says imports of Canadian heavy crude are an increasingly important source of supply to the United States, the world’s largest refining market for such crudes.

The report, Looking North: A U.S. Perspective on Canadian Heavy Oil, said U.S. imports of Canadian heavy crudes will approach 2.8 million barrels per day in 2018 – more than double what they were in 2012 – and could exceed three million barrels per day in 2020.

“The relative importance of Canadian heavy oil to the U.S. market has increased and will continue to do so,” said Kevin Birn, the IHS Markit vice-president who heads the 0il sands dialogue, in a statement. “The United States will import more than 3.6 million barrels per day of crude from Canada in 2018, more than the combined imports from all of OPEC. And most of those imports, about four-fifths, will be heavy oil.”

The report said the U.S. is by far the world’s largest refining market for heavy oil, processing more than half of all that type of crude globally in 2018.

“That capability is the result of investments by U.S. refiners over the past 20 years to process heavier grades of crude, which made the refining sector more flexible and competitive. Unlike lighter crudes – where the boom in U.S. tight oil production has backed out nearly all offshore imports – U.S. demand for and import of heavy crude oil has continued,” said IHS Markit.

“Though Canadian oil supply growth faces challenges from transportation constraints, most of the supply expected from Canada will come from projects already in operation or in motion. Rail capacity is also expected to continue to build over the coming year. … Canada has met a growing portion of U.S. heavy oil demand as other traditional sources of U.S. supply for that type of crude – such as Mexico and Venezuela – have fallen in recent years. It has become the largest producer of heavy crude oil in the world and, over the past few years, the only source of significant production growth of heavy crude globally.”

“The effect of Canada’s expanding market share has been to shore up the U.S. heavy oil market,” said Vijay Muralidharan, director of IHS Markit. “Absent Canadian supply, heavy oil may otherwise be more scarce and expensive.”

The report said the growing supply of Canadian heavy oil, which increased 1.1 million barrels per day from 2012 to 2017, has managed to offset most of the contraction in heavy oil supply elsewhere to date.

“In 2018 the U.S. will import 2.8 million barrels per day of heavy oil from Canada and more is expected in the future. However, the report does qualify that consolidation in the oil sands industry and lagging infrastructure is expected to slow growth in the coming years and may be a source of uncertainty for U.S. heavy oil demand in the longer term,” it said.

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