India's Reliance Industries
and Indian Oil Corporation are seen as potential major buyers of Candian crude, which can be 14% cheaper for them than Indian basket of crude (which stood at around $104/barrel late last week) right now and could turn even more lucrative once the pipeline infrastructure is in place.
When augmented, Alberta oil output could reach 1.1 million barrels per day. Compare that with India's current oil imports of 3.86 million barrels per day, and it is clear that even as China and Japan would compete with India for Canadian crude, India can get a sizeable chunk of it, leading to huge savings on oil import bill and oil subsidies.
In 2012-13, India's oil imports grew by 9.22% to $169.25 billion from $154.96 billion in 2011-12. In the current fiscal, crude oil imports are seen rising to about 196 million tonnes from the 184.795 mt it imported in 2012-13, but relatively low prices have been a solace. India imports crude oil primarily from West Asia.
Canadian high commissioner Stewart Beck told FE that Indian refiners including the state-run IOC and RIL have shown interest in the crude oil being extracted from oil sands that currently trades at $20-25 discount to global crude oil prices. What is more, the synthetic oil extracted from oil sands can help refiners develop a wider range of petroleum products.
The price of oil sands crude trades at a discount as Canada has found huge deposits of the hydrocarbon, which is heavy in nature and difficult to transport, and the US has discovered plenty of its own hydrocarbon reserves in recent times.
Beck said that around 99.9% of Canada's energy exports including oil, gas and hydro go to the US. Oil prices bounce around based on demand. So that is the reason why we would like to access more markets other than the US, said Beck.
An oil ministry official explained that it costs $11-12 per barrel for the transportation of oil by rail from Alberta (located in western Canada) to export terminals on the east coast of the country, and then further shipping the oil to India. India could therefore buy this oil at around $14-15 per barrel lower than the price at which oil is procured at in other markets.
"It (discount) has been as high as $ 40 and probably hovering around $20-25. Reliance has the biggest refinery in the world and they very much like synthetic crude because they can develop a lot more products. The new IOC refinery is also interested in synthetic crude. You get more value from the same barrel of conventional crude, said Beck.
Canada has the world's third largest oil reserves, behind Saudi Arabia and Venezuela. Oil sands are a natural mixture of sand, water, clay and a type of heavy oil called bitumen. Bitumen must be removed from the sand and water before being upgraded into crude oil and other petroleum products.
Alberta has large proven oil reserves of 170 billion barrels, consisting of bitumen (about 168 billion barrels) and conventional crude oil (1.7 billion barrels). However, pipelines to evacuate the oil for exports from this landlocked province to the east coast for exports will not become ready before 2018. Till then the oil will have to be transported using the rail network. Beck said that by the end of this year crude oil volumes of 50,000 barrels per day will become available. This could go up to 1.1 million barrels per day once the pipeline becomes ready in 2018.
'TransCanada proposes to convert its Energy East gas pipeline into oil an oil pipeline. The crude pipeline will go from Alberta to Montreal and then to St John. The terminus will be in St John but once you move in that direction you can also obviously take the pipeline further north to Nova Scotia, but that is again a decision they make as a company, said Beck.
IOC has signed a letter of interest with a government organisation called the Alberta Petroleum Marketing Commission, which has taken a 100,000-barrels-a-day capacity in the pipeline. At some point of time in the future they can enter into a negotiated agreement. These agreements that can last up to 12 months are better than having to bid over and over again, said Beck.
Indian companies have also been visiting eastern Canada and realised that there is a lot of oil off the coast of Newfoundland. IOC recently bought a cargo of oil from Canada's east coast.