United States and Canadian Production and the Future Crude Slate
The U.S. crude slate is changing, and will change even more dramatically as tight oil output rises further and as Canadian imports rise. What are some of the possible impacts on U.S. fuel production? In this article, we use refinery modeling techniques to compare refined product output from conventional Arab Heavy crude, a Canadian dilbit, and a blend of Eagle Ford and Bakken crudes. This is not intended to be a full-fledged national forecasting and modeling exercise. Our goal is to discuss the future crude slate and illuminate the impacts on refining and product output.
On the topic of future U.S. crude production, the U.S. Energy Information Administration (EIA) recently provided early release information on its 2014 Annual Energy Outlook, or AEO. The base case forecast includes domestic crude production growing from 7.72 mmbpd in 2013 to 9.54 mmbpd in 2016, a gain of 1.82 mmbpd. All of this gain is achieved in the lower 48 states—Alaskan production will continue to fall. Tight oils such as those produced in the Eagle Ford and Bakken shale plays will play a significantly larger role in the U.S. slate.
The strength in domestic production, coupled with flat demand, will allow a drop in foreign crude imports. The AEO forecasts that foreign crude imports will fall by 1.56 mmbpd between 2013 and 2016. The sources of foreign supply are changing significantly. The 1970s and 1990s were a turbulent time, with the oil price shocks of 1973-74 and 1979-80. U.S. imports dropped significantly after the United States fell into recession in 1980. After oil prices collapsed by 1986, the UNITED STATES began to import larger volumes of crude. The sources have changed significantly, and Canada has emerged as a vital source. Imports of Saudi Arabian crude have been stagnant or shrinking for the past two decades or so. In contrast, imports of Canadian crude have grown steadily for over three decades, and Canada surpassed Saudi Arabia as a crude source in the year 2004. In 2013, Canadian crude exports to the United States were 2569 kbpd, while Saudi Arabian crude exports to the United States were 1325 kbpd.
Assuming that the Keystone XL pipeline is completed, an additional 830 kbpd of Canadian crudes could be available. The majority of the crude loaded will be bitumen-based products. Canadian production of conventional light and heavy crudes is declining, and the growth in output will come from oil sands. In the year 2000, 70% of Canadian output was conventional light crude, heavy crude, pentanes plus and condensate, while 30% was bitumen. By 2013, the share of conventional output had fallen to approximately 43%, while bitumen accounted for 57% of output. According to the National Energy Board of Canada (NEB,) this trend will continue. The NEB forecasts that conventional crude production will account for only 14% of total output by the year 2035, while bitumen’s share will rise to 86%. Within Canadian domestic refining, approximately 75%-80% of the slate is light crude. Canada’s exports to the United States are around 70% heavy already. Some bitumen is upgraded into synthetic crudes, and these can range from lightly upgraded coker sours all the way up to “champagne” synthetics, which theoretically can be bottomless and sulfur-free. But the economics have not favored the construction of the highest technology bitumen upgraders. Instead, most refinery customers have the upgrading technology on site, and they prefer to pay less for heavy sours. Indeed, many refineries are geared up to receive larger volumes of simple dilbit. (Note the recent coker expansion at BP’s Whiting refinery, for example.) Canada’s output of upgraded bitumen is around one million bpd, and there are plans to expand this to approximately 1.4 mmbpd in the coming decade. But the majority of Canadian bitumen will not be upgraded into synthetic crude, but will be sold instead as dilbit, and the successful completion of the Keystone XL pipeline will ensure a larger volume of this feedstock in U.S. refining.
Comparing Three Crude Slates in an Average U.S. Refinery: The Change in Refinery Output
The United States must accordingly prepare for a future crude slate containing a greater share of bitumen-based products and tight oils. The Bakken and Eagle Ford tight oils are light and low in sulfur, while Canadian dilbits are a mix of light diluent and heavy, sour bitumen. These types of feedstocks are not at all unusual in U.S. refineries, but the emerging volumes will be. The U.S. refining industry evolved over decades to maximize gasoline production using a crude slate that was predicted to continue to grow sourer and heavier. The industry invested in deep conversion cracking and coking configurations, and refiners also invested mightily in technologies needed to comply with fuel quality standards, such as sulfur removal for essentially every fraction of the barrel, selective production, extraction and additional processing of aromatics and olefins, and accommodation of renewable fuels. As such, the industry is highly sophisticated. Logically, a sophisticated refinery would be expected to have the capability to process any type of crude oil, and this is true to a certain extent. However, the type of crude feedstock affects the overall utilization of the refinery’s technology in place. Imagine that a refinery has invested in desulfurization technology that can produce a 10 parts-per million (ppm) ultra-low sulfur diesel from a 5000 ppm sulfur straight run distillate feedstock. Then imagine that this refinery is given straight run distillate feedstock containing only 500 ppm sulfur. It may not be a technological problem to make this adjustment, but it almost certainly will be an economic problem, since the technology purchased is likely to be underutilized. Other issues may indeed be technological as well as economic. For example, a lack of feedstock for one refinery unit may effectively close down an auxiliary unit.
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