It looks like the Canadian government is moving on with finding another buyer of their oil since the US delayed making a decision on the building the pipeline to export the oil to the US:
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.” [Reuters]
Though China is willing to purchase the Canadian oil, South Korea and Japan may not unless they are willing to invest possibly billions in oil refining infrastructure:
Regardless of how much crude Canada has to sell, other Asian buyers in the Pacific — South Korea and Japan — may not be so keen to take more because the crude has API gravity below 20, which makes it one of the heaviest, or of lowest quality.
“The refining capacity is being expanded and with more supply issues, they can take the crude if it is at their doorstep,” said Kang Wu, senior advisor at FACTS Global Energy. “But that’s a big if.”
The low quality means other Asian buyers will have to blend with better crudes and reduce the sulphur content before processing, cutting into profits from processing each barrel. Or refiners have to build so-called secondary units that are capable of producing cleaner-burning fuels from low quality oil.
“Upgrading means you have to add a new unit and you have to retire some other units. That’s a tough choice that involves millions and billions of dollars of investment,” Wu said.
Getting back to the US-Canada pipeline, I am betting after the US Presidential election this pipeline will be approved no matter who wins the election. I think President Obama had to delay this pipeline simply to appease his left wing base before the election and will turn on them afterwards if he wins because he knows building this pipeline is what is good for the nation.