Analysis: Harper's bet may pay off; China open to Canadian oil

Fri Nov 25, 2011 11:00am EST
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By Florence Tan and Judy Hua

SINGAPORE/BEIJING (Reuters) - China is set to embrace Canada's offer of more crude, heating up competition with the United States as the world's top two oil consumers jostle to secure supplies and meet ravenous demand.

Shipments from a politically stable country such as Canada will be a welcome diversification of supply sources as top consumers make plans to deal with a supply shock if tensions in the Middle East escalate and choke off Iranian exports, barely a year after markets coped with a disruption from Libya.

Canada's plan to ship crude to Asia got a boost after Prime Minister Stephen Harper said his nation would step up efforts to supply the region after the United States delayed a decision on a pipeline supply link.

"A Canadian source could offer a diversity of supply attractive particularly to North Asia," said John Vautrain, director at consultancy Purvin & Gertz. "Canada is a stable country, not subjected to geopolitics, and the crude would be valued in the market to make it competitive."

Canada's oil sands output is expected to double by the end of this decade from 1.5 million barrels per day (bpd) now, according to IHS Cera, close to Libya's exports before a civil war disrupted output this year.

China is an ideal client for Canada in Asia as it has the ability to process a wide range of crude and its appetite continues to grow. The Canadian heavy sour grade, which will be shipped to Asia, has API gravity of 19-22 degrees and contains around 3 percent sulphur. Most Asian refineries process crude of 30 degrees API.

"There is no oil that we can't process," an official at Sinopec, Asia's largest refiner, said, declining to be identified as he is not authorized to talk to the media. "With 30 refineries, there will be some that can use Canadian crude."

China, eager to secure extra energy supplies to power its rapidly growing economy, is already buying more Canadian crude.   Continued...