Supply of Canadian oil sands products will increase by 2 million b/d between 2007 and 2015; half of this growth will be in Canadian heavy crude blends. A recent study shows that the export pipeline infrastructure and US refinery capacity will be able to handle forecast additional supplies of Canadian crude during 2007-15. Planned export pipeline infrastructure should keep pace with forecast additional supply of oil sands products to 2015; export pipeline capacity will increase by 2.1 million b/d. Current capacity tightness should be resolved once expected new pipelines start up in 2008 and 2009. By the end of 2015, spare capacity will reduce, suggesting the need for additional export capacity shortly after 2015. Refinery projects targeting Canadian heavy blends that we expect to proceed are aligned with our forecast of additional supply: Canadian heavy blends supply will increase by 1 million b/d by 2015, and projects that are planning on processing heavy blends will increase by 1.1 million b/d.

Flexibility in Canadian heavy blends supply vs. refinery capacity will be available only after commissioning of the proposed Texas Access pipeline to the US Gulf Coast (post 2012). At that point, heavy-oil capacity in the region could be used to process Western Canadian blends if projects do not progress as planned in US Petroleum Administration for Defense District (PADD) 2.

Currently disclosed project costs reveal that pipeline companies and US refiners plan to invest more than $31 billion by 2015 to export and distribute oil sands products as well as process them in the US refining system. This figure excludes any investments in internal pipelines in Alberta, the Canadian refining and upgrading system, and undisclosed refining investments.

Our study shows that pipeline availability will largely determine the actual allocation of crude supplies by 2015:

* Canadian heavy blends. Most additional Canadian heavy blends will be refined in PADD 2 by 2015, with remaining supplies processed in new markets of the US Gulf Coast or supplied from Cushing, Okla.

* Synthetic crude oil. Most additional SCO will be shipped to the US Pacific Coast by 2015; pipeline constraints will limit transfers to PADDs 2 and 3. SCO that will make its way to the Midcontinent will be run in PADD 2 and US Gulf Coast refineries.

This study uses Wood Mackenzie's refinery evaluation model, which provides independent appraisal of global refinery competitive position.

Canadian crude

Canada ranks as having one of the world's largest oil reserves, after only Saudi Arabia and potentially Venezuela. The Albertan oils sands deposit has inplace resources of about 1.75 trillion bbl, of which about 10% are recoverable with current technologies.

Projected growth of Alberta's oil sands output is triggering investments in US midstream and downstream sectors in anticipation of the new production. In Canada, oil producers have announced production projects as well as upgraders that will supply growing volumes of bitumen and SCO.

This has encouraged Canadian and US pipeline companies to propose new midstream infrastructure to deliver the production to market. US refiners have announced projects in preparation for the incoming flows from Western Canada.