Canada Looks to Sell Its Oil Beyond U.S.

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from The Wall Street Journal,

Canada’s landlocked oil-sands producers have sought to access markets beyond North America in recent years, a quest that has taken on greater urgency as U.S. crude output booms. But with few direct outlets overseas, some have started considering Canadian crude exports from the U.S. Gulf Coast.

For decades, a combination of high demand and declining domestic supply in the U.S. made the idea of outbound shipments a nonstarter.

Exporting American oil remains all but taboo for producers in the U.S., which have been effectively prohibited from exporting since 1975 amid the Arab oil embargo.

The Canadian government imposes no such restrictions, and it’s technically legal to re-export crude from the U.S.—if it has been kept completely separate from domestically produced oil. The U.S. Commerce Department has approved eight licenses to re-export crude oil since last October.

But the risk of routing high volumes of Canadian crude through the U.S. is more political than legal. Any plan to re-export significant volumes of Canadian crude is certain to face strong opposition from U.S. lawmakers who view that as end-run around U.S. law. It could also inflame debate about the proposed Keystone XL pipeline, which would provide a new direct route from Canada’s oil sands to Gulf refineries.

Currently, Canadian producers export only a tiny fraction of their output beyond the U.S., mostly via a limited capacity pipeline connecting oil sands in Alberta to Vancouver’s port. Proposals for new or expanded access to Canada’s Pacific coast have been stymied by opposition from Native American and environmental groups.

U.S. House Minority Leader Nancy Pelosi has said she opposes Keystone XL project based partly on a belief the oil would be re-exported. In a recent interview, President Barack Obama repeated that claim about the pipeline, although it’s unclear if he meant the oil would be re-exported as crude or refined products like gasoline.

“The Canadian plan has always been to get their crude to the U.S. coastline so they can export it to other countries, making America the middleman between the dirtiest oil and the thirstiest foreign markets,” Sen. Ed Markey (D., Mass.) said in a recent statement.

TransCanada Corp., which formally announced the pipeline in 2008, has countered criticism Keystone XL is a way station for oil headed overseas, saying it doesn’t expect the oil it carries to be re-exported. “There will be no crude oil [re]exported from Keystone XL,” said CEO Russ Girling in a conference call last month.

Today, the two-thirds of the oil sands 3.2 million barrels a day output not consumed by Canadians is shipped to the U.S., mostly to refineries in the Midwest. Canada accounts for the biggest share of all foreign oil imported by the U.S.

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