A big debate in the news today is whether Canadian oil producers should sell “value added” products by refining them in Canada before shipping to market. Some of this conversation has been suggesting that refining more oil in Canada would free up pipeline capacity. Sounds like a straightforward solution – but when it comes to producing, refining and shipping oil it’s just not that black and white.
In this blog, we’re going to look at what “value added” means, and hopefully clear up some of the questions around refining and transportation of oil.
“Value added” means refining crude oil — turning it into consumer-ready products like gasoline, diesel, jet fuel and a variety of other petrochemical-based products.
About 80 per cent of those refined products are used to move people and goods or keep us warm. (For more information on what is produced from a barrel of oil, check out our factsheet on crude oil.)
But is more Canadian refining the answer to free up pipeline capacity and eliminate the need to reach other markets with a pipeline to tidewater? It’s not that simple. Here are a few reasons why.
Geographic considerations. Canada and the US are such large countries that we need to import and export refined products from convenient locations on both sides of the border to control transportation costs and timeliness of delivery.
This is because some refined products can expire. Gasoline, for example, has a shelf life of only a few months. The volatility of gasoline decreases quite rapidly, and it’s the volatility that makes it fire to run your car. It’s another important reason why gasoline must be refined close to the market where it will be consumed – so it can be refined, transported and used quickly.
Different markets have different fuel needs. In Europe cars run mostly on diesel whereas the US uses relatively little diesel. It would be difficult to refine the specific amounts and types of fuel required in various locations. So, we provide crude oil that can be refined into the best product for each market.
We have to give our customers what they want. Most of Canada’s oil customers want the crude product. Our main customer, the US, has its own refineries and would like to keep them working, just as we want ours to operate at a high rate. If we didn’t supply them with oil, someone else would.
These factors (and more) come into play when looking at refining crude oil in Canada and transporting “value added” products. The fact is that crude oil can be sold to many different customers, who will all use it differently. Once it gets turned into a specific, perishable product, it becomes much more difficult to sell.
Canada’s transmission pipeline companies are committed to delivering Canada’s energy safely and responsibly – whether moving crude oil to refineries or refined products to consumers.