COLUMN-Canada opts for $12 bln oil path of least resistance: Campbell

Thu Aug 1, 2013 10:40am EDT
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By Robert Campbell

NEW YORK Aug 1 (Reuters) - If Canadian oil producers had their way, the last place they would pumping their Alberta crude would be to Canada's East Coast. But TransCanada Corp's Energy East pipeline project is emerging as the path of least resistance for booming oil sands output.

If only local opposition was not a factor, Canada's No.2 pipeline operator must be lamenting. From a marketing standpoint, the logical place to ship Canada's growing oil surplus is the West Coast. It is closer to Alberta, so shipping costs would be less, and the oil would be going to high-value Asian markets.

Failing that, shipping crude through the United States to the Gulf Coast would be the next best option. The big refineries in Texas and Louisiana are able to handle the heaviest grades although marketing power is diminished by the abundance of U.S. domestic crude output.

The East Coast, on the other hand, is a dying market. Shrinking U.S. light crude imports are cutting into the premium value of Atlantic basin crudes. Refinery closures in Europe and North America have also been concentrated on refineries that consume these crudes.

Asian buyers will take barrels from the Atlantic basin but have a strong negotiating position over price given the relative oversupply and the high cost of shipping further undermines what producers can expect to receive from Asian customers buying crude from the east coast of Canada.

But sometimes the path of least resistance is the most expensive. Without Soviet-style powers to dictate the location of a pipeline, producers have to accept what they can get. Still, Alberta producers will be paying a hefty tariff to pump crude up to 2,600 miles (4,200 km) before Asian buyers start lifting cargoes.

With the Keystone XL pipeline to the United States still in limbo and little sign the Obama Administration is prepared to act quickly, Canadian oil producers have little choice but to opt for Plan B, a $12 billion pipeline to the least attractive market.   Continued...