Why does Canada import foreign oil?

Did you know that Canada ranks third in the world for proven oil reserves? Only Saudi Arabia and Venezuela have more oil. Canada is also the fourth largest producer of crude oil in the world.

Yet, in 2018 Canada spent $19.4 billion to import close to 600,000 barrels per day of foreign oil.

In parts of eastern Canada, more than half of the oil that’s refined comes from foreign sources – the majority is imported from the Unites States but also countries as far away as Algeria, Saudi Arabia, Nigeria and Norway.  (Source: Natural Resources Canada).

 

You’re probably wondering… why does Canada import oil?

 

According to a study by the Canadian Energy Research Institute (CERI), it’s simple economics for refiners… “to minimize operating expenses and maximize margins”. In other words, it costs refiners less to import foreign oil than to use domestic product.

Other factors also play a part – such as transportation constraints and processing capability.

 

Let’s look at five reasons Canada imports crude oil from foreign sources.

 

  1. Proximity of abundant U.S. supplies means lower transportation costs for eastern refiners. “The biggest reason we import oil is the simple fact that a lot of U.S. production is closer to eastern markets than supplies from western Canada,” says David Layzell, Director, Canadian Energy Systems Analysis Research (CESAR) Initiative.
  2. There are no oil pipelines that go to New Brunswick, which is home to Canada’s largest refinery – the Irving Refinery. So, they import foreign oil that’s shipped by tanker to their deep-water port at a lower cost than transporting oil from western Canada by trucks or rail.
  3. There’s also a shortage of pipelines to take oil to the other Atlantic provinces and to Quebec. Alternative transportation options to get oil from western oil producing provinces are less cost-effective for refiners than imports.
  4. Most eastern Canadian refineries are unable to process the heavy crude oil (bitumen) that comes out of the Athabasca Oil Sands in Alberta. So, although crude oil from western Canada sells at a discounted price, the refining process can still be more complex and costly.
  5. The CERI report points out that western Canada also imports oil products. Oil sands producers use these imports, which are mostly natural gas condensates from the U.S., to dilute bitumen so that it can be transported by pipeline.

 

A look ahead

 

Looking ahead to future oil demand across Canada, Layzell makes the following points:

  • “In North America, more than 70 per cent of the oil is converted to transportation fuels. And, despite strong interest in battery electric and hydrogen fuel cell electric vehicles, Canada’s demand for traditional transportation fuels continues to rise at about one to three per cent per year.
  • As electric vehicles take an increasing market share in Canada, demand for oil could peak and start to decline. But how fast this occurs will depend on future vehicle markets.
  • Given the lifespan of vehicles, the transition will probably be measured in decades, not years.”

This means that while Canada and the world transition to lower emission energy sources, oil and gas will be important parts of the energy mix for decades to come. And, transmission pipelines will continue to be the safest, most responsible way to transport the oil and gas that Canada and the world need.

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