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North America's Tight Oil, Oilsands Combo for Energy Security, Says IHS

U.S. tight oil and Canada's oilsands have become the "twin pillars" of the continent's energy security, accounting for almost 95% of North American production growth from 2009 to 2015, while at the same time reducing overseas oil imports by 40%, IHS said Monday.

Declines from 2015 record production in North American should level off in 2017, leaving output 80% higher than pre-2009 levels, according to "The Two Pillars: The Increasingly Integrated U.S.-Canadian Oil Trade," by the IHS Canadian Oil Sands Dialogue. The report analyzes the contributions and implications of oilsands and tight oil growth to North America's oil balance and energy security.

"The scale and resiliency of these resources through a time of low oil prices is striking," IHS Vice Chairman Daniel Yergin said. "The long lead times associated with oilsands production means it has continued to grow through the worst of the low oil prices. U.S. tight oil is more price-responsive. But more firm prices are expected as the market begins to move out of surplus, which will incentivize investment for this new short-cycle oil once again."

Even though oil prices have declined sharply since 2014, North American output on an annualized basis this year is forecast to remain above the 2009 level of 8.5 million b/d at 13 million b/d.

Oilsands and tight oil were the primary drivers overall of North American oil production from 2009 to 2015, rising by more than 5 million b/d. In 2009, close to one-half of North American refinery demand "was met by offshore (i.e. non-U.S. and Canadian) imports," IHS said. In 2015, more than 70% of North America's refinery supply was enabled by domestic resources.

"The distinct nature of oilsands and tight oil growth has also contributed to further integration of the North American oil market," said IHS researchers. Oilsands in Canada are most compatible with refineries geared to process heavy crudes, such as those in the U.S. Midwest and U.S. Gulf Coast, while tight oil is most attractive to those that process light crude, such as Canada's eastern refiners."

Between 2009 and 2015, U.S. light crude exports to Canada increased by 400,000 b/d, while U.S. imports of heavy oil, primarily from oilsands, jumped 1.2 million b.d. Canada now accounts for an estimated 40% of total U.S. crude imports, IHS noted.

"Oilsands and tight oil may compete for capital, but not for markets," said IHS Energy director Kevin Birn, who heads the Oil Sands Dialogue. "In terms of meeting North American refinery demand, they represent complementary rather than competing types of crude. The integrated North American oil trade allows Canada and the United States to achieve a greater energy security than either could accomplish individually."

The potential exists for even more trade, integration and energy security between Canada and the United States in the future, "with particular potential for Canadian oilsands to replace even more offshore imports of heavy crude to the United States," researchers said.

North America imported about 2 million b/d of heavy sour crude, similar in quality to the oilsands, with nearly 90% directed to the U.S. Gulf Coast. "Refineries there face an uncertain future from their historical suppliers, notably Venezuela," the IHS report said. "Venezuela, facing economic collapse and moving deeper into crisis, currently exports over 800,000 b/d to the United States."

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