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Additional Alberta crude supply may help fill Venezuela sanctions gap in U. S. refineries

 


 

By Meghan Gordon / Platts

WASHINGTON

Petroleumworld 02 01 2019

More Canadian crude supply will soon be available to US Gulf Coast refiners looking to replace Venezuelan barrels, after the Alberta government Wednesday said it was raising its oil production cap by 75,000 b/d.

However, Canadian producers may only be able to make up about 100,000 b/d of the roughly 500,000 b/d USGC heavy crude supply gap caused by US sanctions on Venezuela because of limited takeaway capacity.

Also, while shipments of Canadian crude to the USGC have risen, higher Canadian crude prices have cut into arbitrage economics, at least for spot shipments by rail.

Alberta on Wednesday said it is raising its oil production cap by 75,000 b/d to 3.63 million b/d for February and March. Alberta raised its cap after one month of a 325,000 b/d curtailment shrank storage levels faster than expected, by 5 million barrels to 30 million barrels, the government said.

But S&P Global Platts Analytics sees the potential for only about 100,000 b/d in additional takeaway capacity from Alberta by the middle of 2019, including crude-by-rail and Enbridge pipeline optimization projects, said Jenna Delaney, senior analyst.

"These additional barrels will help with supplementing Venezuelan heavies, but will not be able to completely cover the shortfall," she said.

Alberta currently has about 250,000 b/d of crude-by-rail capacity, which is expected to rise to 350,000 b/d by the end of the year, said Jonathan Stringham, manager of fiscal and economic policy at the Canadian Association of Petroleum Producers. The trade association sees potential for as much as 650,000 b/d of capacity longer term.

Stringham said it is possible the Venezuelan disruption could have led some to push the government to ease the production cuts.

"Some of our producers have been very public about the unintended consequences of curtailment already, without the Venezuela factor weighing in," he said. "I think that could be a possibility. Certainly, if the price is right in the Gulf, there's certainly an incentive to get their crude down there."

SUPPLY OPTIMISTS

Supply optimists see the Venezuelan disruption boosting USGC prices enough to keep the arbitrage open for Canadian crude shipments to the USGC, despite the currently full pipeline and rail capacity.

According to the US Energy Information Administration, 563,000 b/d of Canadian crude was shipped to the USGC in November. That average was down from the record high 644,000 b/d transported in October, but up 58.6% from 355,000 b/d in November 2017.

Valero Energy on Thursday said it brought more Canadian crude to its USGC refineries in the fourth quarter of 2018, and would likely bring in more because of the sanctions on Venezuela (See story, 2100 GMT).

Canadian crudes were price advantaged in Q4 because of takeaway capacity constraints, which kept the arbitrage wide open for anyone able to line up transportation. But prices have risen in the first quarter following mandated output cuts imposed by Alberta.

Western Canada Select averaged at a $34.87/b discount to WTI in Q4, but that discount has narrowed to average $9.58/b so far in January, S&P Global Platts data shows. As a result, the USGC coking margin for WCS has weakened to average $7.28/b so far in January from $34.50/b in Q4.

Still, that margin is favorable compared to a $2.97/b average for Mexican Maya crude. And Maya crude supply is limited as state-owned Pemex sells the bulk of its dwindling supplies under term contracts.

Tighter WCS price discounts have made the arbitrage to the USGC unworkable at higher spot rail costs, although the arbitrage is marginal at lower term rail costs, according to Platts calculations.

Stringham said Canadian producers are comfortable with a WCS discount in the low $10s/b.

"If it gets a lot wider than that, obviously that's going to be concerning to us," he said.

Looking further out, some producers wonder if the US sanctions on the Maduro regime will bring "short-term gain, long-term pain" for Alberta, said Stringham.

"Long term, if we have a stable Venezuela, does that mean we're going to have upwards of 2.5 million b/d coming back in, call it five years from now?" he said.


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By Meghan Gordon, with Jeff Mower in New York; Edited by Keiron Greenhalgh from Platts / SPGlobal.



spglobal.com
01 31
2019

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