Montreal Could Become an Oil Export Hub

Montreal has emerged as an export base for Western Canadian heavy sour crudes as prospects to construct new pipelines to the British Columbia coast, Eastern Canada and U.S. fade.

Suncor, owner and operator of the 137,000 b/d Montreal East refinery in Quebec, loaded 35,000 mt of Western Canadian Select (WCS) crude from Montreal East onboard the Panamax tanker Sparto Sunday, according to market sources. Sparto is bound for the Motiva Norco refinery in Louisiana. This is believed to be the first time Western Canadian crudes are being shipped from Montreal into the U.S. Gulf Coast.

Suncor, in addition to its tankage at its Montreal East refinery, has leased tankage at Kildair’s Sorel-Tracy terminal in eastern Montreal. Sources say Suncor currently is railing in Western Canadian crudes into these two terminals.

“Suncor, which has time chartered Panamax tankers and leased additional storage at the Sorel terminal, will export or use these crudes at its Montreal refinery pending its economics,” said French-Canadian shipping and commodity trading specialist Simon Jacques Monday. Jacques is based in Saint John, New Brunswick. “If Suncor can refine these crudes, then it will do so. If not, it will seek an export market.” But Jacques noted also that Montreal is not a perfect export location. “It has an inherent disadvantage that it has a shallow draft.”

Despite that, according to Jacques, “[the developments at Montreal all makes sense as Enbridge will begin transporting 300,000 b/d of Western Canadian heavy sour crudes once its Line 9B, from Montreal to Westover, Ontario is reversed in the fourth quarter.”

Enbridge had earlier said in its regulatory filing that it expects to being linefill on Line 9B in October. “Completion of Line 9B’s reversal is expected by year end,” spokesman Graham White said in an email Monday.

Once Line 9 begins to supply Western Canadian heavy sour crudes to Montreal, Valero will also begin shipping Canadian heavy sour crudes from Montreal up to its 265,000 b/d Jean Gaulin refinery in Quebec City. Earlier this year, Valero teamed up with Groupe Desgagnés, a Quebec shipping company, to transport Canadian heavy sour crudes from Montreal to Quebec City on Panamax tankers.

Valero has said on record that its Jean Gaulin refinery would run a 100% on North American crudes by the end of this year.

Some players questioned the logic of railing in Western Canadian crudes to Montreal and then sailing it to the U.S. Gulf Coast. “Why don’t you just rail south?,” asked one trader. Separately, a source with a refiner said the Montreal to U.S. Gulf Coast approach via tanker “is only applicable to Gulf Coast refiners without the ability to receive and discharge crudes from rail cars,” said one U.S. refiner. “Refiners prefer to receive crudes directly from rail cars or from pipeline into tankers rather than molecules from pipeline stored in a tank.”

Sources said crudes on rail cars have about 5% or lower diluent than oil moved on pipelines. On top of that, shipments in the summer have between 10-15% diluent and in the winter months as high as 33% diluent. “The higher diluent volume will have a [larger] discount to crudes with lower levels of diluent, and moreover refiners prefer crudes will lesser amounts of diluent,” said the U.S. refiner.

Platts earlier this week assessed WCS ex-Hardisty at WTI calendar month average minus $23.00/b. Traders put rail charges from Hardisty to Montreal at around $10/b with freight from Montreal to Louisiana at $3.49/b. In the Gulf Coast, Canadian heavy sour crudes are talked at a parity or a slight premium to WCS at Cushing, which was assessed at WTI calendar month average minus $6.95/b. So the economic incentive to move WCS to the Gulf Coast is clear.