What would it take for Eastern Canada to run on Western Canadian oil?

Yesterday, I had a lengthy Twitter discussion with Green Party Leader Elizabeth May, on the subject of oil pipelines and energy security.  A few things in the discussion surprised me, and it also forced me to think a lot more about oil infrastructure in this country and to put some numbers to the question, “What would it take for Canada to be oil self-sufficient?” What would we have to put in place to supply all of Eastern Canada’s refineries with Canadian oil?

Let’s be clear on a couple of things up front – first, I don’t necessarily think that oil self-sufficiency is the right goal. If we can supply ourselves with oil at a lower net cost by exporting west or south and importing from the east, as we have for years, that’s likely the preferred solution.  Second, I’ll have to leave a lot of details out of this post in terms of oil grades, refinery compatibility, etc. Third, I’ll assume that we run the existing Canadian refinery stock at nameplate capacity, regardless of Canadian domestic refined-product demand, with the balance of production going to export. Finally, I’m going to ignore the fact that the Enbridge mainline system runs through the US, and treat it as a potential bullet line from Western to Eastern Canada.  More to come on each of those elements in future posts.

So, how much refinery capacity is there in Eastern Canada? There are 10 operating refineries, after the closure of Shell’s Montreal-East refinery, with capacities as follows:

Refinery Capacity
North Atlantic Refinery, Come by Chance, Nfld. 115,000 bbl/d
Imperial Oil Refinery – Dartmouth, NS 89,000 bbl/d
Irving Oil Refinery, Saint John, NB 300,000 bbl/d
Suncor Energy Refinery, Montreal, QC 160,000 bbl/d
Levis, (Ultramar/Valero), Levis, QC 215,000 bbl/d
Nanticoke Refinery (Imperial Oil), Nanticoke, ON 112,000 bbl/d
Sarnia Refinery, (Imperial Oil), Sarnia, ON 115,000 bbl/d
Sarnia Refinery, (Suncor Energy), Sarnia, ON 85,000 bbl/d
Corunna Refinery, (Shell Canada), St. Clair, ON 72,000 bbl/d
Total 1,263,000 bbl/d

So, the total refining capacity of almost 1.3 million barrels per day is housed in 4 distinct areas: Southwestern Ontario (384kbpd), Montreal and Quebec City (375kbpd), the Maritime provinces (389kbpd) and Newfoundland (115kbpd). Since pipelines are linear transportation infrastructure, the location of the capacity matters as much as the total number.  (Thanks to Claude Boucher for pointing out that my table had failed to include the closure of the Gulf Oil 70kbpd refinery in Montreal, which closed in 1986!)

The second element of the calculation is Eastern Canadian oil production. The National Energy Board 2011 forecast sees significant decreases in production over the coming 25 years, with production decrease from about 310,000 barrels per day today to around 100,000 barrels per day by 2035.  That means that today, over 1 million barrels per day of Eastern Canadian refining capacity must run feedstock imported from other regions – either by tanker or by pipeline, and that number will increase over time.

Source: National Energy Board

These figures line up quite closely (as they should) with domestic demand and import numbers.  In January 2011, for example, the total domestic crude oil demand in Eastern Canada was 1.15 million barrels per day (combined heavy and light) while total imports were 660 thousand barrels per day, with the balance supplied by domestic production and western Canadian crude oil.

Bottom line – in order for Canada to be self-sufficient in terms of feedstock for our our existing refineries, we’d need to increase west-east crude movements by 600kbpd today, and by at least 800kbpd within the next couple of decades.  If we simply wanted to set the bar at supplying enough crude to refine for our domestic consumption, that number decreases by about 60%, since during the same period (January, 2011), we exported about 475kbpd of refined products out of Eastern Canada.

So, what existing pipelines are in place which could make this happen? There are three major pipeline systems that currently bring crude oil into eastern Canada: the Enbridge Mainline (722 kbpd on Lines 5 and 6b) which terminates at Sarnia/Nanticoke, Enbridge Line 9 (240kbpd, connected to the mainline), and the Portland-Montreal pipeline (140kbpd).

In order to serve existing demand in Eastern Canada with Western Canadian crude, you would need significant changes in infrastructure, including the addition of new pipelines.  Assuming that Eastern Canadian production remains sufficiently high to feed the Come-by-Chance refinery, you would need a reversal of Line 9, complemented by an additional 500-600kbpd of capacity between Superior, Wisconsin and Montreal along Enbridge Mainline and Line 9 routes.  You’d also need new pipelines with 500kbpd of capacity from Montreal to Levis, with 400,000 continuing capacity to Saint John.  As Eastern Canadian production declines, you’d also need a pipeline linking Saint John and Dartmouth to deliver 90,000 barrels per day.  That’s a serious amount of new capacity.

What would that look like?  Well, you’d need to install a 34-36″ line both between Superior and Sarnia, perhaps on the existing path of Line 5 (I doubt you’d get a lot of buy-in to twin Line 6b right now) and also on the existing right-of-way for Enbridge Line 9 if feasible, or on a new right-of-way, to Montreal. You’d likely continue with the same design through to Levis with a likely 30″ line running from Levis to Saint John – the project would likely be about twice the scale of Northern Gateway, as it would have to cover 1500-2000km of distance with similar diameter pipeline.

So, is it feasible?  Yes, it’s absolutely feasible, but there are other issues which I’ll discuss in future posts.  First, most of the refinery capacity in Eastern Canada is not equipped to run heavy and high-sulphur feedstocks produced by the oilsands, although refits would be possible. Second, assuming that some refits would be undertaken as a less costly alternative to upgrading prior to shipping, additional pipeline capacity might be needed to return diluents used to ship oilsands bitumen. Finally, and perhaps most importantly, there would be the issue of tolls and pricing. If you’re considering moving western canadian crude over 5000km to eastern canadian refineries located on tidewater ports, the key question would be who pays for that self-sufficiency? The transportation costs would likely be $12-15/bbl, meaning Alberta producers would consistently get $12-15 below the world price, or domestic refiners would pay more than what they could pay to access crude right off their shores. Figuring out that issue might be just as challenging as building the pipelines, as one of Ms. May’s tweets suggested.

I can’t imagine this will be the last post I write on this subject, but I hope this was an informative start. This is new research for me as well, so your comments on infrastructure alternatives are most welcome.

 

54 responses to “What would it take for Eastern Canada to run on Western Canadian oil?”

  1. Doug Marr

    Interesting article. Although Andrew does a good job of showing the massive undertaking of moving tar sands oil east I still think that the environmental costs of moving oil west, to China, through an,as yet, pristine mountain and ocean area has not been adequately factored in. I don’t know whether that is possible in todays economic climate but, for the sake of future generations , I sincerely hope so!
    Thanks for your input Andrew. You certainly remind all of us that this is not an issue that has simple solutions.

  2. Robert McClelland

    You wouldn’t need additional pipelines. The oil can be refined at it’s source in Alberta and Saskatchewan.

    1. Stephen Gordon

      So – a gigantic fleet of gasoline tanker trucks criss-crossing the Trans-Canada?

      Or am I supposed to drive to Calgary to fill up?

  3. Annette Hester

    This is a discussion we need to have. You have painted the landscape with your usual precision. Now we need to colour it.

    Lets think about the value of spreading Canada’s upgrading capacity to provinces that have plenty of hydro power, hence offsets. Lets think of job creation in jurisdictions that need it. Lets think of joint research to improve the sustainability of our refining park (which, as you point out, would need to be adapted to a different crude.

    And lets stop conducting our analysis of oil markets in absence of politics. Approximately 80% of the oil resources are in the hands of national governments through state-owned enterprises. Like it or not, that means something. Lets think about all the implications, without paranoia. I am not suggesting it is bad, simply that decisions on production and pricing, investment, research, etc.. are made differently. In fact, the reason we have “historically” exported Western produced oil through Sarnia and imported oil to Montreal was in response to an arrangement between Diefenbaker and Eisenhower which exempted Canada’s oil from US import duties.

    That said, we do need to ensure we have a value proposition. How do we add nation building to this proposition?

    1. Claude Boucher

      Ms Hester,

      The plan involves a massive investment in new infrastructure, thus a substantial risk for both the pipeline owner and their putative customers, the eastern refineries. Because the whole plan works only if the current spread between WTI and Brent prices remains in place for the foreseeable future (far from a certainty). If you fix the Cushing bottleneck, you make the project less competitive…

      Another risk lies in the declining demand trend for refined petroleum products in the east. In Quebec for instance, demand has been flat or slightly declining in the last few years, because an increase in gasoline demand was balanced by reductions in #2 and #6 oil. This was one of the factors behind the closure of the Shell refinery in Montreal-East in 2010 (the others are the small size of the complex, the scarcity of supply and the age of the facility).

      Regarding politics, I don’t know how you’re going to sell “nation building” to my compatriots. The boys from the oil patch tried it with shale gas and they ended up empty-handed. At the end of the day, buying crude oil from either Alberta, Algeria or Norway is a drain on Quebec’s trade balance.

      Andrew: Your table on refining capacity in the east is somewhat out of date. According to the Quebec Department of Natural Resources and Wildlife (French), there are only two refineries left in Quebec. Suncor in Montreal (140 kbpd) and the Ultramar (Valero) refinery in Lévis (which has been recently upgraded to 265 kbpd).

  4. Robert McClelland

    Per your last comment in the thread. Sorry, didn’t mean to imply my post was a rebuttal of your post. It was merely an expansion on my earlier comment.

    As far as numbers go, that’s beyond my ability. But they ones you want are a moot point since I’m not advocating moving oil or gasoline east; though I do leave the possibility open.

    As for the refineries, the eastern ones would continue operating as they do now since the refined gasoline would go to either the US or west coast for sales overseas. Also note that my plan in the short and medium term is to build refineries to refine oil from expansion, not existing operations. So the new refineries would simply be built here instead of increasing capacity in the US.

  5. Annette Hester

    Dear Claude and Andrew;

    I am not insensitive to the massive costs of building new infrastructure. Neither am I oblivious to the risks. I do believe, however, that if we are to realize the full potential of our energy resources/economy in Canada (not just Alberta), we need to have an informed conversation.

    That includes — as Andrew suggests — putting numbers on all the different options you can think of and then thinking forward. If you had not added some vision and risk mitigation by governments, would the Transcanada gas pipeline have been built? Granted, the conversation was different…it was a different time and place. Regardless, it took courage to suggest a new way of looking at a challenge. Check David Finch’s article in today’s Calgary Herald (http://www.calgaryherald.com/business/Pipelines+have+long+complicated+history+Alberta/6140333/story.html)

    Finally, on the Quebec and Alberta conversation, it is time to turn a page and figure out how to build something together. And the same is true for Ontario and all other provinces. If anyone has good ideas, do put them forth.

    We know what the problems are, it is time for creative solutions. On that, Andrew, thanks for your dedication in talking to everyone, and for your imagination and hard work. I am certain solutions will be offered and in no small measure, because people like you are ready and open to engage. You rock my friend!

  6. Robert McClelland

    The cost of building new refining capacity in North America is roughly $1 billion per 50k barrels/day refining capacity. Therefore all things are equal and refining at source is cheaper.

    1. Claude Boucher

      The addition of a coker unit at Suncor’s Montreal refinery was estimated at $1.5 B back in 2006 (link here). Building a new refinery from scratch would be much more expensive.

  7. Darklamp

    Curious to know how the pipeline from Levis, QC to Saint John, NB is 1500 to 2000 km, if only the drive is roughly 700 km?

    I recall that there was discussion to develop a natural gas pipeline from Saint John to Quebec, it seemed feasible, especially to introduce gas to a whole new region, however, it was a small market compared to exporting to Maine.

    1. Claude Boucher

      Darklamp,

      Long story short: in 1978, Trans-Canada applied for the extension of its pipe to the Quebec City area with a view of expanding to the Maritime province by 1985. A distinct proposal by a group called Quebec & Maritimes proposed a project to immediately expand to Halifax. The concurrent proposals were merged and studied by the NEB. In April 1980, The Trans-Canada part — Saint-Lazare to Saint-Nicolas (now part of Lévis) was approved but the Q & M part was denied.

      See all the gory details here (76 pages PDF, in English). Have fun 🙂

  8. Bob Duncan

    I have often considered if what I am about to propose would be beneficial to Canada from a, “energy self-sufficiency” prosepective and if it would make economic sense…. Would it make sense to build a pipeline right along beside the natural gas pipeline that is entirely in Canada (the one that goes north of Lake Superior) to carry refined oil to eastern Canada. Or, the new pipeline could carry crude and we could build a massive refinery in Ontario? Would this make sense?

  9. Bob Duncan

    Andrew
    Thank you for your kind response to my question. I was especially gratified by your, “this might have legs” comment, being that I feared my question would have a person of your ‘energy expertise’ rolling in laughter because of it being such an idiotic idea.
    I have always had great admiration for the courage of The Right Honourable St. Laurent and Mr. Howe in building an all Canadian Natural Gas Pipeline.
    I use this blog to formerly call upon Mr. Harper to keep the natural gas pipeline built by Mr. St. Laurent and twin it with a new crude oil pipeline. (The first one could be red and the new one blue, hee hee)And then a massive new refinery could be built around Sudbury.
    We could reduce everybody’s fuel bill in Ontario, Quebec and the Maritimes by using WTI priced crude, we could free eastern Canada from foreign oil, and create thousands of jobs with one bold Canadian initiative! My Fellow Countryman Do You Stand With Me?

    Bob

  10. Bob Duncan

    Thank you Andrew, I have a very keen interest in acquiring a knowledge of the crude oil market mainly because I have concluded that our prosperity at this epoch in human history is inextricably linked to the price we pay for oil ergo I am glad I found your blog. I will take my time to persuse all your articles.
    At the moment, I am unable to predicate my belief that twinning the TCPL with a crude oil pipeline upon as much facts as perhaps such a belief should properly be based upon however at the moment, I believe that common sense alone can make a cogent argument for a sovereign, all Canadian pipeline being built, to protect the citizens of central and eastern Canada from the vagaries of foreign crude suppliers. Not to mention the very large number of high paying jobs that would be created in building the pipeline and the long term jobs created by the building of a world class refinery in Ontario.
    Thank you for hearing my idea and thank you for responding to it. I will hold off posting any further posts until I have taken the time to read all your articles. Thank you for all the hard work you have invested in acquiring all your knowledge and in disseminating it which such limpidity. I greatly appreaciate it. Bob

  11. Bob

    Hi Andrew
    I just read an article entitled, ‘Canada Exports Jobs Along With Its Oil,’ by Frances Russell from the Winnepeg Free Press, January 25th, 2012.
    Ms. Russell wrote with penetratingly keen insight, and as a result, I am much more cognizant of why policy makers in Canada defer in favour of the interests of multinational oil companies rather than making decisions that are in the best interest of the ordinary citizens of central and eastern Canada when it comes to oil security.
    In light of this information, I have concluded that my hope of a All Canadian Crude Pipeline (going north of Superior) will never happen. Although I still believe in it..
    1) MacDonald built the rails across Canada
    2) St. Laurent built the nat. gas pipeline across Canada
    3) Harper could have built the crude oil pipeline across Canada
    My question to you is as follows…Generally speaking, I am in favour of governmental decisions that are biased in favour of big business because they are more likely to invest and expand business and as a corollory will produce more jobs and increase prosperity. BUT, because of our dependance on petroleum, should the Canadian government make and exemption in the case of oil and focus upon National Energy Security?
    Perhaps there is enough oil to first of oil achieve Canadian oil security and then allow large oil companies to pursue profits where ever they can best generate them?
    Bob

  12. Bob

    Thank you Andrew. By, “energy security” I mean, “supply security.” In my opinion, we need to make decisions based upon free market economics AND national supply security for every region of the country. To me its a no brainer, we are a net exporter of oil, so lets pass a law that we only export what is left over AFTER each citizen of Canada is assured a steady supply of Canada’s oil.
    Andrew, can you explain this one to me? The oil companies in Alberta are trying to find ways to sell more oil, (ie Keystone to the gulf, and the pipeline to Kitimat, sorry about the spelling). Well, we have a market right here in Canada, and it is Ontario, Quebec and the Maritimes who are forced to import oil from foreign countries. Why don’t the oil companies exploit this market? We don’t have to get President Obama’s approval for that pipeline? That will have a duel benefit, it will provide a ‘market price paying steady customer’ for the oil companies and it will provide national, “supply security” for Canadian citizens in central and eastern Canada?
    Bob

  13. Bob

    Hi Andrew, I hope I dont seem importunate, but if convenient, could you answer my question regarding Ontario? The question I posed on February 28th.

  14. Bob

    Thank you Andrew. I understand and appreciate your answer.

    If we leave the oil decisions to the forces of supply and demand, we may find that Canadian citizens get, “priced out” by more prosperous countries that are able to pay more for it. (Goverments who have the money to subsidize the cost so their citizens pay less than market price).Therefore Canadians cannot afford to use their own oil at world market rate because of the forces of supply and demand and other citizens from more prosperous economies are using that oil at a cheaper than market rate because of their government’s subsidies.

    Also, the supply of foreign oil we rely upon and that we can barely afford now, is a very precarious supply. If something happens to disupt that foreign supply we may find ourselves wishing that we had adopted a more “Nationalistic Oil Policy.”
    Bob

  15. Bob

    Thank you Andrew

    Firstly, regarding economics…We may find that the broader economy of Canada may expand exponentially if we assure it of a steady/safe/reasonably priced supply of domestic oil.

    But,(having written that) I am acutely aware of my inferiority to debate economics with you. However, I propounded ANOTHER REASON for adopting a more, “Nationalisic Canadian Oil Policy,” and I find it interesting that you have not addressed it with your responses.

    The supply of crude to Central and Eastern Canada is so ineffably crucial that I believe it is irresponsible to make all the decisions based upon supply and demand, free markets and what’s best for the oil companies. If, for some reason, those foreign oil tankers can’t pull up to the east coast to supply Ontario, Quebec and the Maritimes with oil, (and there are many reasons why that could happen), we are going to wish we had the presience to build a safe, reliable, domestically controlled pipeline north of Superior.

    Bob

  16. Bob

    Thank you Andrew,

    You have been very illuminating. I’m in over my head. I’m going to do more study and then challenge you again.

    By the way, in the event of a supply disruption. (if we did in fact have a west/east pipeline) I don’t think we will be having a lofty debate whether to, “keep the cheap oil” or “sell the expensive oil.” I think we will be tying to avoid anarchy.

    Bob

  17. Darklamp

    Seems like the Alberta Wildrose Party is interested in this debate.

    http://www.thestar.com/news/canada/politics/article/1145577–tim-harper-northern-gateway-keystone-clogged-the-tar-sands-look-east

    Perhaps the Wildrose wants to be friends with the East and not let them freeze in the dark.

  18. Bob

    Hi Andrew,

    Below, I have referenced an article I read this morning that I found particularly illuminating.

    As you wrote, “this idea might have legs.”

    Bob

    TransCanada looks east as Gateway pipeline gets bogged down
    nathan vanderklippe AND shawn mccarthy
    CALGARY, OTTAWA— From Friday’s Globe and Mail
    Published Thursday, Mar. 22, 2012 7:23PM EDT
    Last updated Thursday, Mar. 22, 2012 8:38PM EDT

  19. James Drinkwater

    I have been following the trials and tribulations of the Canadian oil industry for a while. While no expert on the subject, I can see that it is going to be economically unfeasible to ship western crude by either rail or barge from Montreal to the Irving Oil refinery in Saint John, NB. Recently here in Maine there has been much discussion about the creation of an East/West highway by foreign investors which is being promoted by the Cianbro Corp. in Pittsfield, Maine. Cianbro retools paper mills and builds and maintains bridges for highway projects. Cianbro also builds equipment for the oil and gas industry. The proposed route would lead from Coburn Gore, ME (just south east of Lac Megantic, PQ) and end up in Houlton (a stone’s throw from St. John, NB). With every article I can find on the subject telling me that the oil companies in Canada are eyeing Irving’s refining capacity, and Cianbro being the company here in the States pushing for this project, I can’t help but think that this highway project is actually a pipeline project. Has anyone found anything that would disprove my theory?

  20. Jesus Garcia

    What would it take? The will to overlook the environmental devastation that results from tar sands production. The will to overlook accelerated climate change caused by the extraction of tar sands oil, the destruction of the carbon sink that is/was the boreal forest, and the continued burning of fossil fuels to power trips to the corner store for a creamy, etc. The will to look the facts in the face and say “Ha!”. The will to set aside compassion for your fellow human and for the well being of future generations for short term profits. The will to utterly waste the most important source of finite fuel on the planet; the will not to use it for the creation of renewable energy sources but instead to power our ‘4 mile commute to work’.

    This thread and the complete lack of humanity represented herein makes me ill.

Leave a Reply