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SINGAPORE/BEIJING – China is set to embrace Canada’s offer of more crude, heating up competition with the United States as the world’s top two oil consumers jostle to secure supplies and meet ravenous demand.
Shipments from a politically stable country such as Canada will be a welcome diversification of supply sources as top consumers make plans to deal with a supply shock if tensions in the Middle East escalate and choke off Iranian exports, barely a year after markets coped with a disruption from Libya.
“There is no oil that we can’t process,” an official at Sinopec, Asia’s largest refiner, said, declining to be identified as he is not authorized to talk to the media. “With 30 refineries, there will be some that can use Canadian crude.”
China is an ideal client for Canada in Asia as it has the ability to process a wide range of crude and its appetite continues to grow. The Canadian heavy sour grade, which will be shipped to Asia, has API gravity of 19 to 22 degrees and contains around 3% sulphur. Most Asian refineries process crude of 30 degrees API.
Canada’s plan to ship crude to Asia got a boost after Prime Minister Stephen Harper said the country would step up efforts to supply the region after the United States delayed a decision on the proposed Keystone XL pipeline supply link.
Canada’s oil sands output is expected to double by the end of this decade from 1.5 million barrels per day (bpd) now, according to IHS Cera, close to Libya’s exports before a civil war disrupted output this year.
China, eager to secure extra energy supplies to power its rapidly growing economy, is already buying more Canadian crude.
Canadian crude exports to the Asian nation rose more than 60% this year after the arbitrage window opened on low freight rates and deep spot discounts and a depressed West Texas Intermediate marker. But that still makes up less than 0.3% of its total purchases.
“A Canadian source could offer a diversity of supply attractive particularly to North Asia,” said John Vautrain, director at consultancy Purvin & Gertz. “Canada is a stable country, not subjected to geopolitics, and the crude would be valued in the market to make it competitive.”
The top three Chinese oil companies, PetroChina, Sinopec and China National Offshore Oil Corp., own equity stakes in oil sands fields, while Sinopec is one of the backers of the Northern Gateway project that would carry Canadian crude to the West Coast for loading on tankers.
Regardless of how much crude Canada has to sell, other Asian buyers in the Pacific – South Korea and Japan – may not be so keen to take more because the crude has API gravity below 20, which makes it one of the heaviest, or of lowest quality.
“The refining capacity is being expanded and with more supply issues, they can take the crude if it is at their doorstep,” said Kang Wu, senior advisor at FACTS Global Energy. “But that’s a big if.”
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