These barrels are hitting the Gulf thanks to new pipeline connections and expansions that just came online last year, and are meeting surging global demand that has pushed oil prices to seven-year highs. Major producers, including the Organization of the Petroleum Exporting Countries and allies including Russia, are struggling to raise output, along with traditional providers of heavy crude like Venezuela and Mexico.
By contrast, Canada’s oil sands production is at a record 3.5 million barrels a day. Most of that is exported to use in the United States, but a growing number of barrels are transiting the country to the U.S. Gulf Coast, where it is then re-exported.
In 2021, Canadian exports from the U.S. Gulf Coast averaged more than 180,000 bpd, reaching nearly 300,000 bpd in December, a record, according to Matt Smith, Kpler’s lead oil analyst for the Americas. That’s up from roughly 70,000 bpd in 2019 and 2020. The accelerated pace is expected to continue in 2022.
Those barrels are primarily going to big importers India, China and South Korea – in part to offset for the loss of Venezuelan barrels, which is under U.S. sanctions and dealing with years of underinvestment.
Canadian producers have benefited from changes in pipeline infrastructure that make it easier to ship to the Gulf Coast, the largest U.S. export hub, where more than 3 million barrels ship out every day.
The Capline Pipeline, whose owners include Plains All American Pipeline and Marathon Petroleum Corporation (MPC.N), reversed flows in 2021, sending more oil from Patoka, Illinois, to terminals in St. James, Louisiana.
The demand is helping support prices in Alberta, where benchmark Canadian heavy crude is currently trading around C$13.50 a barrel, said Tudor Pickering Holt analyst Matt Murphy.
“As we get more exposure to global markets that’s backing up into western Canada,” Murphy said. “The industry as a whole benefits.”
Companies benefiting from increased Gulf exports are those that have dedicated capacity on pipelines carrying Canadian crude, including MEG Energy (MEG.TO), Cenovus Energy (CVE.TO) and to a lesser extent Suncor Energy (SU.TO), Murphy said. MEG expects to sell about two-thirds of its estimated 2022 production of 95,000 bpd, into the Gulf Coast.