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North America: A continent in three parts

The North American countries (Canada, the US, and Mexico) share many common interests, with their economies further linked via the North American Free Trade Agreement (NAFTA), a trilateral trade bloc that came into force in 1994. The North American energy industries enjoy numerous synergies; close geographical proximity and shared borders have promoted strong trade links. Canada in particular, with its relatively small oil market demand and its vast resources, has benefited from a long shared border with the US, the world’s chief oil importer.

Energy demand and outlook

The pattern of demand is diverse, though fossil energy (oil, natural gas and coal) clearly dominates the picture. The US remains the world’s single largest oil market, yet North American demand has been stagnating and declining in recent years. North American oil demand is expected to recover only slowly and to grow at a sedate pace for the foreseeable future, while the growth outlook for key Asian markets remains fairly robust.

Crude production and trade

Historically, the US was the birthplace of the modern oil industry. As such, its reserves have been more thoroughly exploited, and the easy oil has been found. Canadian output has continued to expand, reaching 3.2 million bpd in 2009 and estimated at 3.3 million bpd in 2010. Canadian output has helped moderate declines in US output, and this may have an increased importance in the post Macondo era. The number of active drilling rigs in Mexico rose slightly in response to the high prices of 2008, but some of this was from renewed activity at onshore fields, which in Mexico are typically smaller producers.

Canadian oils

The continued growth in Canadian output, and the growing importance of Canada as a source of crude for US refining, is to a large degree a function of Canadian oilsands. If crude oil prices remain strong and advances continue to be made in oilsands extraction, transport and processing, exports of bitumen products from Canada are expected to continue to grow. However, developing and upgrading oilsands is capital intensive, and like many industries, capital is in scarce supply in today’s economy.

There are many oilsands projects planned and proposed, and their timing, configurations and partners may shift over time. However, the US Department of Energy forecasts that Canadian oilsands production will rise from 1.5 million bpd in 2008 to 2.4 million bpd in 2015, 2.9 million bpd in 2020 and 5.2 million bpd in 2035.

Refining sector and US crude slates

Heavy oils and bitumen based products are already processed in the US, and Canadian resources play an especially prominent role in certain refining centres.

There has been little growth in Canadian and Mexican refinery capacity over the past 20 years. Mexico has six refinery complexes with a nameplate capacity of 1.54 million bpd (note that BP’s assessment of Mexican capacity is slightly lower than the official capacity,) all operated by Petroleos Mexicanos (PEMEX) the national oil company established in 1938. There are now plans to build a new refinery at Tula in Hidalgo State. The US refining industry remains the world’s largest, with capacity currently 17.8 million bpd. The long period of capacity creep is especially noteworthy.

Conclusion

The North American oil market remains the world’s largest, and it is also the key to the global gasoline market. It also remains the largest centre of refining, though most of the emphasis on refinery construction has shifted to the developing world. Mexico is the only NAFTA member now moving forward with a grassroots refinery, plus the country will upgrade an existing plant.

The energy markets of Canada, the US and Mexico have grown closer, with many mutually beneficial synergies, and in almost all foreseeable futures, Canadian resources are destined to play a larger role in the North American energy market.

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Published on 07/03/2011

 
 

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