All the proposed pipelines across eastern Canada are capturing headlines, but are leaving three crudes out in the cold, literally.
Hibernia, Terra Nova and White Rose, the three grades produced from fields offshore Newfoundland and Labrador, have long been a part of the local market for refineries along the North American East Coast and eastern Canada.
Now, with the TransCanada announcing it will proceed on its Energy East pipeline project and Enbridge reversing the flow of its Line 9 pipeline (detailed here), the three offshore grades are likely to be pushed out of those markets.
If and when these pipelines are completed (likely sometime around 2018), eastern Canada will be flooded with just under 2 million b/d of crudes from the fields in western Alberta. Since the Canadian Association of Petroleum Producers expects production from this region to reach 4.61 million b/d by 2020, there should be plenty of oil to go around.
These projections leave a pretty narrow, if not bleak, opportunity for the east coast crudes to operate in the next decade, at least in their local market. The three fields currently produce about 200,000 b/d, with a new field, Hebron, expected to come online in 2017.
It is possible, however, that the future for these crudes has already arrived.
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Imperial Oil, a subsidiary of ExxonMobil, is converting its 88,000 b/d Dartmouth refinery in Nova Scotia into a products terminal at the end of this year. It was one of the main buyers for Hibernia crude, cutting out demand for that grade.
Even if demand remained steady, however, the logistics of providing east coast crudes to area refineries is changing. The east coast crude operators use the 236-mile Portland-Montreal Pipeline to get their supply into the local market. But refiners have essentially stopped using the line in anticipation that it will be reversed along with Enbridge’s Line 9.
On top of all the pipeline reversals, the increase in crude-by-rail has made refiners less dependent on geographically-accessible supply.
Kinder Morgan recently announced plans to build a 40,000 b/d rail loading facility in Edmonton, Alberta. Phillips 66, PBF and Philadelphia Energy Solutions have either built or expanded on rail terminals at their refineries on the east coast, allowing them to tap into the seemingly endless supply of Bakken.
Of course, the east coast crudes are not just going to drop off the face of the earth. The grades are becoming more prevalent in Europe because of the unstable Middle East market, as well as in Latin America, which views them as North Sea alternatives.
They will probably find buyers closer to home as well, if the price is right.
No, it’s not the beginning on the end for Hibernia, Terra Nova and White Rose. But it is the beginning of change.