Friday, November 6, 2015

The Oil Supply changes of the last 7 years and Keystone pipeline changes

Oil Supply Picture Has Changed Since Keystone Was Proposed

By CLIFFORD KRAUSSNOV. 6, 2015

HOUSTON — When the Obama administration began considering the Keystone XL pipeline seven years ago, oil production in the United States was falling and most analysts thought it would never recover. At the same time, Mexican oil production was also in decline, meaning that domestic refineries would soon need another source of crude.

Canada, and its expanding oil sands industry, seemed like the perfect solution. But so much has changed in the oil patch since then that many energy experts say the Keystone pipeline, which the Obama administration rejected on Friday, matters far less than it once did.

Domestic production has nearly doubled and has flooded the market with so much crude oil that prices have plummeted. Refineries along the Gulf Coast still need the heavy crude Canada produces, but they are finding new ways to obtain it, and storage facilities are filled to the brim.

“Keystone XL is not nearly as important as it seemed to be a few years ago,” said Rusty Braziel, the president of RBN Energy, a consulting firm. “For Gulf refineries it is not a huge deal.”

In just the past three years, two million barrels of new crude pipeline capacity has been built around the Gulf of Mexico region, and more pipelines are on the way, capable of transporting Canadian crude along with domestic oil.

Rail connections from Canada, built to move oil in part because of the Keystone delays, have multiplied. And with crude prices expected to stay relatively low for years, the expansion of Canadian oil sands production has slowed.

South of the border, Mexican officials are putting in place a change in the Constitution to allow foreign oil companies to invest in their fields, opening the possibility of a rebound in Mexican production over the next decade. Even without the Keystone XL, total American imports of Canadian crude — from oil sands as well as more conventional varieties — have increased since 2008 from 2.5 million barrels a day to 3.8 million barrels a day while imports from OPEC countries have plummeted.

Still, the pipeline’s proponents see a long-term benefit to building it to transport 830,000 barrels a day, mostly from Canada. Dependence on Canada for energy is less fraught with risk than relying on countries like Nigeria or Saudi Arabia, proponents say.

“It’s ironic that the administration would strike a deal to allow Iranian crude on the global market while refusing to give our closest ally, Canada, access to U.S. refineries,” said Jack Gerard, president of the American Petroleum Institute, in a statement.

The oil industry has plenty to gain from the pipeline. It would make producers’ considerable investments in Canadian oil sands production more valuable, while assuring American refineries a secure source of crude for decades. Labor unions joined in the call for the pipeline, pointing to the thousands of jobs that its construction would produce.

The domestic shale revolution has mostly produced a flood of light sweet oil, which does not match exactly with the needs of many Gulf of Mexico refineries which were designed to process heavy Mexican, Venezuelan and Canadian crude.

But the landscape in the refinery business has changed as well in recent years as refineries have invested heavily to take the new local output. That has enabled the refiners around Houston to reduce their imports of medium and heavy crude from an average of 1.4 million barrels a day in 2010 to 900,000 barrels a day this July, according to a new RBN Energy report.

The biggest change has been the construction of pipelines not named Keystone XL in the United States.

The Obama administration, for example, approved a shorter section of the pipeline connecting the storage field in Cushing, Okla., with Texas refineries, allowing an increase in both Canadian and domestic shipments of 700,000 barrels a day. At the same time, Enbridge and Enterprise Partners expanded a separate pipeline system, called Seaway, which can now deliver 850,000 barrels a day from Cushing to the Gulf refinery hub.

That means, energy experts said, that American consumers should not feel a difference.

“In terms of distribution and what people will pay, Keystone doesn’t really mean much,” said Tom Kloza, global head of energy analysis at Oil Price Information Service. He said more Canadian oil “will go by rail to some places or by pipeline to others.”

All told, the Gulf refineries have tripled their processing supplies of Canadian crude since 2010 to more than 300,000 barrels a day, according to Andy Lipow, president of Lipow Oil Associates, a consulting firm based in Houston.

“The urgency for the pipeline is certainly down because oil prices are $45 and not $100 a barrel, and you are seeing a decline of investment in Canada, which means that increases in expected future growth are simply not going to be there,” Mr. Lipow said.

But he has a nuanced view, seeing potential benefits for the pipeline in the years ahead.

“No one has sat down and calculated how much greenhouse gas we have emitted from fighting wars in the Middle East,” he said.

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New York Times