A wave of Alberta crude oil is washing up on British Columbia shores, destined for export. But the sole refinery on Canada's West Coast is finding it so difficult to secure domestic oil that it is considering, instead, buying it from as far away as Saudi Arabia.
Chevron Canada operates a refinery in British Columbia, just a couple of kilometres away from a pipeline that carries crude from Alberta's surging oil sands to Pacific waters. But as Canada's energy industry pushes for massive expansion of that pipeline to take more Alberta crude to the West Coast in the chase for higher oil prices abroad, Chevron is scrambling to obtain enough domestic oil to fill its refinery.
It's a startling illustration of the upheaval sweeping the oil patch – a refinery finds itself competing with global customers for oil that is literally pumped past its back door.
Chevron says it has scoured the world for potential sources of new supply, and has been forced to build new facilities to import oil on trains and trucks to feed its Burnaby refinery. Importing crude from Saudi Arabia – or other places such as Oman, Iraq and Russia – has proven a difficult proposition since it would require major new dock facilities. But by next year, 15 per cent of its oil will come by rail and highway.
Yet the refinery is situated just 2.5 kilometres from the Westridge Terminal, at the terminus of the Kinder Morgan-owned Trans Mountain pipeline, which carries Alberta barrels west and is in the midst of a major effort to more than double its throughput. More than a tanker a week sails a stone's throw from the refinery, each carrying Canadian oil from that pipeline to customers in California and, occasionally, Asia.
It's those tankers that are, in many ways, responsible for the problems Chevron is having. The refinery's scramble for oil is perhaps the single best indication of the tremendous shift under way in the oil patch, as oil companies rapidly move to seize new export markets that pay higher prices for crude.
The Pacific exports promised by new pipelines are no longer hypothetical. They have, quietly, already begun, in a way that is bringing about great change.
"It's sort of a tip of the iceberg, if you will, for the future," said Steve Fekete, a managing director with crude consultancy firm IHS Purvin & Gertz.
Those early tanker shipments are part of a process: before Californian or Asian refineries take large volumes of Canadian crude, they start with small amounts, running them through their sophisticated machinery to assess performance. If they are happy, they can then sign on to the much bigger quantities of oil that will move west if pipelines like Northern Gateway, and an expanded Trans Mountain, are built.
It's clear that process has begun, Mr. Fekete said: "There's definitely crude oil that's moving to Asia from B.C. these days."
The Chevron refinery, then, suddenly finds itself competing for oil with a much broader market. The impact has been dramatic. In November of 2010, the refinery received 51,609 barrels from the pipeline. In the first four months of 2012, it averaged 33,744. During that period, the pipeline was roughly 70 per cent oversubscribed, as huge volumes of oil sought to find their way to Pacific markets.
"Because of the demand on that pipeline from non-B.C. shippers and non-B.C. refiners, the pressure has been on that pipeline," said Ray Lord, a Chevron spokesman.
To compensate, Chevron has begun finding other ways to get its oil – like through rail – and has also asked the National Energy Board to give it what's called a "priority destination designation." It's the third time it has sought such a designation, which would place it first in line for oil – rather than tussle for pipe space with others – a request it has buttressed by making the case for its importance. The refinery provides work for 460 people and supplies 30 per cent of B.C.'s transportation fuels. Without secure access to oil, it says, that's all in jeopardy.
"It's a significant issue for us, probably the largest one facing this refinery," Mr. Lord said. "The current situation is not sustainable for us and it certainly does threaten the refinery."
In other words, the race to send Canadian oil to Asian refineries could claim a refinery here in Canada – a possibility that has rankled people like Kennedy Stewart, the Burnaby MP seeking to protect the Chevron refinery.
Still, it may not be entirely that simple. While Chevron is seeking to battle its current uncertainty in obtaining oil – a difficult business environment – some in the oi lpatch say Chevron may also be enlisting the NEB's help in guaranteeing a supply of cheaper Alberta oil, rather than paying the higher Pacific price crude. Indeed, Chevron has, and has had, the opportunity to guarantee supply: Last year, Kinder Morgan offered 50,000 barrels of day of guaranteed pipeline capacity to the highest bidders. Chevron was not among them. Kinder Morgan also auctions off 25,000 guaranteed barrels per day every month – but again, only to those willing and able to pay.
And at least some in the oil patch seem unhappy to give Chevron priority access. Among the companies involved in the NEB process, which will launch hearings in January, are BP plc, Devon Corp., Nexen Inc., Royal Dutch Shell plc, Suncor Energy Inc. and Imperial Oil Ltd. Their worry: if Chevron gets guaranteed oil, they may be shut out of an increasingly lucrative market.
Imperial, for example, warns that its access to the coast "may be negatively impacted if the [Chevron] application is successful."