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IHS Report: Canadian Oil Sands, U.S. Tight Oil Support North American Energy Security Amid Low Prices

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Canadian oil sands and U.S. tight oil production have become the twin pillars of North American energy security. They account for nearly 95 percent of North American production growth from 2009-2015 and reducing offshore oil imports during that period by 40 percent, says a new report by the global research firm IHS. Despite expected declines due to low oil prices, total North American production this year (on an annualized basis) is expected to remain far above the 2009 level of 8.5 million barrels per day (bpd), around 13 million bpd.

Entitled “The Two Pillars: The Increasingly Integrated U.S.-Canadian Oil Trade,” the new report by the IHS Canadian Oil Sands Dialogue compares the state of Canada and U.S. oil import reliance over time and provides analysis on the contributions and implications of oil sands and tight oil growth to the North American oil balance and energy security.

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Canadian oil sands and U.S. tight oil were the primary drivers of overall growth in North American oil production, which rose by more than 5 million bpd from 2009 to 2015 making Canada and the United States (if considered collectively) the largest producer in the world during that time, the report says. About half of North American refinery demand was met by offshore (i.e., non-U.S. and Canadian) imports in 2009. In 2015, more than 70 percent of refiners’ supply was met by domestic sources.

Despite the recent period of low oil prices and the resulting impact on investments in new production, IHS expects North American production volumes to level off later this year and average around 13 million bpd for 2016 – still well in excess (80 percent higher) of pre-2009 levels.

“The scale and resiliency of these resources through a time of low oil prices is striking”, said Daniel Yergin, IHS vice chairman and Pulitzer Prize-winning author. “The long lead times associated with oil sands production means it has continued to grow through the worst of the low oil prices. U.S. tight oil is more price-responsive. But more firm prices are expected as the market begins to move out of surplus, which will incentivize investment for this new short-cycle oil once again.”

The distinct nature of oil sands and tight oil growth has also contributed to further integration of the North American oil market, the report says. Oil sands in Canada are most compatible with refineries geared to process heavy crudes, such as those in the U.S. Midwest and U.S. Gulf Coast, while tight oil is most attractive to those that process light crude, such as Canada’s eastern refiners.

U.S. light crude exports to Canada increased 400,000 bpd during 2009-2015, while U.S. imports of Canadian heavy oil — primarily from the oil sands — increased 1.2 million bpd during the same period. Canada now accounts for about 40 percent of total U.S. crude imports.

“Oil sands and tight oil may compete for capital, but not for markets,” said Kevin Birn, director of IHS Energy and head of the Oil Sands Dialogue. “In terms of meeting North American refinery demand, they represent complementary rather than competing types of crude. The integrated North American oil trade allows Canada and the United States to achieve a greater energy security than either could accomplish individually.”

The report concludes that there is potential for even greater trade, integration and energy security between Canada and the United States in the future, with particular potential for Canadian oil sands to replace even more offshore imports of heavy crude to the United States.

North America imported significant volumes — about 2 million bpd — of heavy sour crude similar in quality to the oil sands, with nearly 90 percent going to the U.S. Gulf Coast. Refineries there face an uncertain future from their historical suppliers, notably Venezuela, the report says. Venezuela, facing economic collapse and moving deeper into crisis, currently exports over 800,000 bpd to the United States.

Oil Sands Costs and Competitiveness and all other IHS Oil Sands Dialogue Research is available at ihs.com/oilsandsdialogue.

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