Analysis: Spills flame Canadian oil debate, but won't curb flows to U.S

Tue Apr 2, 2013 7:43pm EDT
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By Jeffrey Jones

CALGARY, Alberta (Reuters) - Two high-profile oil spills won't stem the now-record flow of Canadian oil into the United States, despite the frenzy that the spills triggered among friends and foes of the Keystone XL pipeline to the main U.S. refineries.

The fate of Keystone remains undecided, yet Canadian crude will become an increasing part of the U.S. energy mix, despite growing competition from new U.S. production.

U.S. thirst for Canadian crude has shot up nearly 30 percent over the past five years as refiners opt to buy from the north instead of bringing in more expensive OPEC oil, thanks to a boom in production from the vast Alberta oil sands.

Midwest refiners have invested billions of dollars to tweak plants to take more of the heavy crude from the region, and a small but growing network of rail routes have sprouted up to augment existing pipelines.

So even as environmentalists seized on oil spills last week in Arkansas and Minnesota to warn about the impact of expansion in the tar sands -- the world's third-largest crude deposit -- it appears only a crash in the price of oil or unexpected regulation will derail the growing energy interdependence.

"Short-term, this is not good for producers, it's not good for Canadian oil going south, it's not good for Keystone," John Stephenson, vice-president and portfolio manager at First Asset Investment Management in Toronto said of the two spills.

"But I think the reality is this oil is going to make it south of the border, quite likely by rail or one of the other pipelines across the Canadian-U.S. border, so I see it as a short-term hiccup at worst."

Canada's black gold has allowed the Obama administration to crow about dwindling reliance on oil from less-friendly suppliers in the Middle East and elsewhere. In addition, a glut of the Canadian heavy oil has tempered higher gasoline prices, especially in the U.S. Midwest.   Continued...

Emergency crews work to clean up an oil spill near Interstate 40 in Mayflower, Arkansas March 31, 2013. REUTERS/Jacob Slaton