They aren't reinventing the wheel, just rolling it the other way trying to make a quick buck.
That's the rationale behind recent plans disclosed by BP and Shell to ship oil produced in the U.S. to Canada.
Don't expect the developments to mark a shift in strategy, analysts say, noting that relatively small amounts are involved.
"Obviously it defies gravity because we are a net importer of crude and Canada is the largest source of crude supply to the U.S.," Oppenheimer & Co. energy analyst Fadel Gheit said. "But in this business, it's always a two-way street."
Bottom line: The U.S. exported an average of about 47,000 barrels of crude a day to Canada last year -- less than half of 1 percent of Canada's oil imports. The total spiked to roughly 77,000 in July, the latest month for which data is available.
By comparison, the U.S. imported 2.5 million barrels of crude a day from Canada in July, or more than 32 times the amount it exported to Canada during the same month, according to the Energy Information Administration.
"It's a pretty small amount of volume and I think it's just because it's closer to get it to a market that can use it," Lysle Brinker, director of energy equity research at analysis and consulting firm IHS, said of the exports to Canada.
It's not uncommon for oil produced in the northern U.S. to make its way to Canada, and oil companies need permits from the Commerce Department to export the crude that specify where and to whom the oil is going.
Companies are trying to reduce their transportation costs as much as possible. "Somebody's obviously turning the numbers and figures they can make a few extra dollars," Brinker said.
Rising production from places like the Bakken Shale in North Dakota has created a glut of light sweet crude. Analysts say sending some of that to Canada and perhaps bringing back heavy Canadian crude to U.S. refineries makes sense, from a cost perspective. The shorter the distance, the higher the margins.
"It's a free market and it's only going to Canada, and of course Shell does have refining interests up in Canada," Brinker said. "I don't know what the game plan is, but I think it's only a small part of the strategy."
BP already has gotten government approval for exports, and Shell Oil has applied for a permit to do the same. In BP's case, the permit does not give the company carte blanche to export oil to Canada, but rather the deliveries are very specific and targeted, a person familiar with the arrangement said, adding that BP hasn't shipped any crude under the permit yet.
BP and Shell haven't disclosed how much oil they are exporting, to whom they are sending it, and how much they expect to get in return. Analysts don't expect it to be a windfall, however.
"If cargo can't go from one part of the country to the other and it's better to send it elsewhere, we are doing it," Gheit said. "It's the exception to the rule to export oil from the U.S. to any other country, especially Canada."
Distributed by MCT Information Services
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