Connect with us

Canadian Energy Centre

The importance of Canadian crude oil to refineries in the U.S.

Published

8 minute read

From the Canadian Energy Centre

By Ven Venkatachalam

Oil from Canada supplies more than 23% of U.S. refinery feedstock, helping bolster North American energy security

Introduction

The refining industry¹ in the United States is one of the world’s largest, with capacity to process 18 million barrels of oil per day. Canada plays a crucial role by supplying more than one-fifth of the crude oil refined in the U.S.

The U.S.–Canada cross-border crude oil trade is essential to North American energy security. Canadian crude oil exports and the U.S. refinery industry are highly integrated. In recent years, Canada’s crude oil sector has been making a growing contribution to the operations of U.S. oil refineries.

U.S. refineries are converting Canadian crude oil, including heavy oil,² into products that North Americans use daily, such as transportation fuels (gasoline and diesel), chemicals, and plastics. Although the U.S. has increased its production of oil in recent years, U.S. refineries still rely on Canadian heavy crude oil to meet their feedstock (i.e., the raw materials and intermediate materials processed at refineries to produce finished petroleum products, otherwise known as refinery inputs) specifications.

In this CEC Fact Sheet, we examine several economic indicators that illustrate the importance of Canadian crude oil, particularly heavy crude, to U.S. refineries. This fact sheet also analyzes the refining industry’s direct and indirect economic impacts on the U.S. economy.


1. NAICS Code 324110 (Petroleum Refineries): This industry comprises
establishments primarily engaged in refining crude petroleum into refined petroleum.

2. A majority of the crude oil imported by the U.S. from Canada is heavy crude (between 15-25 API gravity). API gravity is a commonly used index for measuring the density of crude oil or refined products. Crude oil typically has an API between 15 and 45 degrees. The higher the API, the lighter the crude; the lower the API, the heavier the crude.

Imports of Canadian crude oil to refineries in the United States

The physical characteristics of crude oil determine how it is processed in refineries. Generally, heavy crude oil offers higher yields of low-value products (coke and asphalt) and lower yields of high-value products (gasoline). Heavy crude oil requires more complicated processing than lighter crude if it is to produce high-value products.

Overall, Canadian crude oil imports to U.S. refineries for processing have risen from over 1.3 million barrels per day in 2000 to just under 3.8 million barrels per day in 2022, an increase of 181 per cent (see Figure 1). The per cent of Canadian crude in U.S. refinery feedstock has steadily risen from nearly 9 per cent in 2000 to over 23 per cent by the end of 2022.

Source: U.S. Energy Information Administration (2024a, 2024b, 2024c)

The U.S. refining industry

Since the first U.S. refinery began operating in 1861, the refining industry has been one of the largest manufacturing sectors in the United States. There are currently 129 petroleum refineries across the five U.S. PADDS³ (125 operating refineries and five refineries that are idle but not permanently shut down) (see Table 1).


3. The United States is divided into five Petroleum Administration for Defense 
Districts (PADDs) for the allocation of fuels derived from petroleum products, 
including gasoline and diesel fuel. The geographic breakdown of PADDs enables 
U.S. policymakers to better analyze petroleum supplies in the country
Source: U.S. Energy Information Administration (2023)

Total refining capacity in the United States has risen from 16.2 million barrels of crude processed in 2000 to nearly 17.8 million barrels per day in 2022, an increase of over 8 per cent (see Figure 2). The refining utilization⁴ has also recovered, growing from 79 per cent during COVID-19 to a high of 91 per cent in 2022.

Source: U.S. Energy Information Administration (2024b)

The impact of the U.S. refining industry on the American economy

The estimated direct and indirect economic impacts of the U.S. refining industry in 2024 include 1.6 million direct and indirect jobs, $206 billion in labour income, $577 billion in direct and indirect value-added, and $1.6 trillion in what is known as “outputs,” i.e., the value of goods and services produced by the industry (see Table 2).⁵


4. Capacity measures how much crude oil refineries are able to process. 
Utilization measures how much is actually being processed (as a percentage of 
maximum capacity). 
5. These projected amounts are in nominal U.S. dollars
Source: Author’s calculations using the IMPLAN modelling system. Details may not add up to totals due to rounding

Projected spending by the U.S. refining industry, 2024-2030

Figure 3 illustrates the industry’s projected annual spending between 2024 and 2030. Industry spending is expected to be US$58 billion in 2024, rising to US$62 billion by 2030. This includes operating expenditures (OPEX) and capital expenditures (CAPEX). Cumulatively, between 2024 and 2030, the industry is projected to spend over US$428 billion.⁶


6. These projected amounts are in nominal U.S. dollars and are calculated using 
the Rystad Energy UCube.
Source: Derived from Rystad Energy (2024), Service Market Solution

Conclusion

American refineries are critical to the country’s strategic interest. U.S. refineries are projected to spend more than $428 billion in the next seven years on operating and capital expenditures. The industries support millions of jobs. Canadian crude is an important part of the equation. It supplies more than 23 per cent of U.S. refinery feedstock.

Not only are Canadian crude oil supplies critical for the U.S. refining industry, but they are key to North American energy security. Limiting access to Canadian crude oil for U.S. refineries would require increased U.S. imports from less-free countries, which in turn would risk North American energy security.


References

Rystad Energy (2024), Service Market Solution <http://tinyurl.com/28fmv6a6>; U.S. Energy Information Administration (Undated), Oil and Petroleum Products Explained: Refining Crude Oil <http://tinyurl.com/3b2uwrxh>; U.S. Energy Information Administration (2023), Refinery Capacity Report <http://tinyurl.com/2s4ybz9z>; U.S. Energy Information Administration (2024a), Petroleum and Other Liquids: PADD District Imports by Country of Origin <http://tinyurl.com/58mzvtts>; U.S. Energy Information Administration (2024b), Petroleum and Other Liquids: Refinery Utilization and Capacity <http://tinyurl.com/3wx957k4>; U.S. Energy Information Administration (2024c), Petroleum and Other Liquids: U.S. Imports by Country of Origin <http://tinyurl.com/bdcsbwhn>; U.S. Environmental Protection Agency (Undated), Appendix A — Overview of Petroleum Refining, Proposed Clean Fuels Refinery DEIS <http://tinyurl.com/dveyzc8k>.

Todayville is a digital media and technology company. We profile unique stories and events in our community. Register and promote your community event for free.

Follow Author

Canadian Energy Centre

What’s next? With major projects wrapping up, what does Canada’s energy future hold

Published on

From the Canadian Energy Centre

By Mario Toneguzzi

‘This is the first time Canada will enter the global marketplace as a global player, so it is an incredibly important change for the industry’

With the recent completions of the Trans Mountain expansion and Coastal GasLink pipelines, and the looming completion of LNG Canada within the next year, there are few major energy projects with the green light for one of the world’s largest and most responsible energy producers.

Which leaves a lingering question: In a world that has put a premium on energy security, what’s next for Canada?

Heather Exner-Pirot, a senior fellow and director of the natural resources, energy and environment program at the Macdonald-Laurier Institute, said Natural Resources Canada’s major projects inventory “has been in a pretty sharp decline since 2015, which is concerning.”

“It’s not just oil and gas but also mining, also electricity . . . It’s the overall context for investment in Canada,” said Exner-Pirot, who is also a special adviser to the Business Council of Canada.

“When we look at BC, we see TMX, Coastal GasLink, very soon LNG Canada will be finishing up. That’s probably in the order of $100 billion of investment that that province will lose.

“So you do start to think about what happens next. But there are some things on the horizon. I think that’s part of it. Other LNG projects where maybe it wasn’t politically popular, it wasn’t a social license, and maybe the labour force was also constrained, and now is opening opportunities.”

recent analysis conducted by Exner-Pirot found that between 2015 and 2023, the number of energy and natural resource major projects completed in Canada dropped by 37 per cent. And those that managed to be completed often faced significant delays and cost overruns.

One notable project Exner-Pirot expects to fill the void is Ksi Lisims LNG, which is being developed on the northwest coast of Canada to export low-carbon LNG to markets in Asia. The project represents a unique alliance between the Nisga’a Nation, Rockies LNG and Western LNG.

Ksi Lisims LNG is a proposed floating LNG export facility located on a site owned by the Nisga’a Nation near the community of Gingolx in British Columbia.

The project will have capacity to produce 12 million tonnes of LNG per year, destined for markets in the Pacific basin, primarily in Asia where demand for cleaner fuels to replace coal continues to grow.

Rendering of the proposed Ksi Lisims floating LNG project. Image courtesy Ksi Lisims LNG

As well, the second phase of the LNG Canada export terminal in Kitimat, B.C. shows increasing signs of moving forward, which would roughly double its annual production capacity from 14 million tonnes to 26 million tonnes, Exner-Pirot added.

While nearby, Cedar LNG, the world’s first Indigenous-owned LNG export facility, is closing in on the finish line with all permits in place and early construction underway. When completed, the facility will produce up to three million tonnes of LNG annually, which will be able to reach customers in Asia, and beyond.

According to the International Energy Agency, the world is on track to use more oil in 2024 than last year’s record-setting mark. Demand for both oil and natural gas is projected to see gradual growth through 2050, based on the most likely global scenario.

Kevin Birn, chief analyst for Canadian oil markets at S&P Global, said despite the Trans Mountain expansion increasing Canada’s oil export capacity by 590,000 barrels per day, conversations have already begun around the need for more infrastructure to export oil from western Canada.

“The Trans Mountain pipeline, although it’s critical and adds the single largest uplift in oil capacity in one swoop, we see production continue to grow, which puts pressures on that egress system,” he said.

Photo courtesy Trans Mountain Corporation

Birn said Canada remains a major global player on the supply side, being the world’s fourth-largest producer of oil and fifth-largest producer of natural gas.

“This is a really important period for Canada. These megaprojects, they’re generational. These are a once-in-a-generation kind of thing,” Birn said.

“For Canada’s entire history of being an oil and gas producer, it’s been almost solely reliant on one single export market, which is the United States. That’s been beneficial, but it’s also caused problems for Canada in that reliance from time to time.

“This is the first time Canada will enter the global marketplace as a global player, so it is an incredibly important change for the industry.”

Exner-Pirot said Canada has the ability to become a major exporter on the energy front globally, at a time when demand is accelerating.

“We have open water from B.C. to our allies in Asia . . . It’s a straight line from Canada to its allies. This is a tremendous advantage,” she said, noting the growth of data centres and AI is expected to see demand for reliable energy soar.

“We are seeing growing electricity demand after decades of plateauing because our fridges got more energy efficient and our washers and dryers got more energy efficient. Now we’re starting to see for the first time in a long time more electricity demand even in developed countries. These are all drivers.”

Continue Reading

Canadian Energy Centre

Trans Mountain completion shows victory of good faith Indigenous consultation

Published on

Photo courtesy Trans Mountain Corporation

From the Canadian Energy Centre

By Joseph Quesnel

‘Now that the Trans Mountain expansion is finally completed, it will provide trans-generational benefits to First Nations involved’

While many are celebrating the completion of the Trans Mountain pipeline expansion project for its benefit of delivering better prices for Canadian energy to international markets, it’s important to reflect on how the project demonstrates successful economic reconciliation with Indigenous communities.

It’s easy to forget how we got here.

The history of Trans Mountain has been fraught with obstacles and delays that could have killed the project, but it survived. This stands in contrast to other pipelines such as Energy East and Keystone XL.

Starting in 2012, proponent Kinder Morgan Canada engaged in consultation with multiple parties – including many First Nation and Métis communities – on potential project impacts.

According to Trans Mountain, there have been 73,000 points of contact with Indigenous communities throughout Alberta and British Columbia as the expansion was developed and constructed. The new federal government owners of the pipeline committed to ongoing consultation during early construction and operations phase.

Beyond formal Indigenous engagement, the project proponent conducted numerous environmental and engineering field studies. These included studies drawing on deep Indigenous input, such as traditional ecological knowledge studies, traditional land use studies, and traditional marine land use studies.

At each stage of consultation, the proponent had to take into consideration this input, and if necessary – which occurred regularly – adjust the pipeline route or change an approach.

With such a large undertaking, Kinder Morgan and later Trans Mountain Corporation as a government entity had to maintain relationships with many Indigenous parties and make sure they got it right.

Trans Mountain participates in a cultural ceremony with the Shxw’ōwhámél First Nation near Hope, B.C. Photograph courtesy Trans Mountain

It was the opposite of the superficial “checklist” form of consultation that companies had long been criticized for.

While most of the First Nation and Métis communities engaged in good faith with Kinder Morgan, and later the federal government, and wanted to maximize environmental protections and ensure they got the best deal for their communities, environmentalist opponents wanted to kill the project outright from the start.

After the government took over the incomplete expansion in 2018, green activists were transparent about using cost overruns as a tactic to scuttle and defeat the project. They tried to make Trans Mountain ground zero for their anti-energy divestment crusade, targeting investors.

It is an amazing testament to importance of Trans Mountain that it survived this bad faith onslaught.

In true eco-colonialist fashion, the non-Indigenous activist community did not care that the consultation process for Trans Mountain project was achieving economic reconciliation in front of their eyes. They were “fair weather friends” who supported Indigenous communities only when they opposed energy projects.

They missed the broad support for the Trans Mountain expansion. As of March 2023, the project had signed agreements with 81 Indigenous communities along the proposed route worth $657 million, and the project has created over $4.8 billion in contracts with Indigenous businesses.

Most importantly, Trans Mountain saw the maturing of Indigenous capital as Indigenous coalitions came together to seek equity stakes in the pipeline. Project Reconciliation, the Alberta-based Iron Coalition and B.C.’s Western Indigenous Pipeline Group all presented detailed proposals to assume ownership.

Although these equity proposals have not yet resulted in a sale agreement, they involved taking that important first step. Trans Mountain showed what was possible for Indigenous ownership, and now with more growth and perhaps legislative help from provincial and federal governments, an Indigenous consortium will be eventually successful when the government looks to sell the project.

If an Indigenous partner ultimately acquires an equity stake in Trans Mountain, observers close to the negotiations are convinced it will be a sizeable stake, well beyond 10 per cent. It will be a transformative venture for many First Nations involved.

Now that the Trans Mountain expansion is finally completed, it will provide trans-generational benefits to First Nations involved, including lasting work for Indigenous companies. It will also demonstrate the victory of good faith Indigenous consultation over bad faith opposition.

Continue Reading

Trending

X