If the U.S. trade deficit shrunk a bit in October, it was largely thanks to the fracking revolution. Foreign sales of U.S. petroleum grew a whopping 6% from September, pushing overall exports to $192.7 billion, their highest dollar-value ever. Petroleum imports, on the other hand, inched up a mere 1.5%. As TD’s Michael Dolega pointed out in a research note, the surge in U.S. domestic production seems to have put a lid of petroleum import growth. The original case for building Keystone XL — that it would deliver oil from Western Canada to an energy-starved Uncle Sam — never looked weaker.
But before solemnly declaring the controversial pipeline obsolete, consider this. According to the latest data from the the U.S. Energy Information Administration, U.S. imports of Canadian crude were up 10% in September compared to the same period last year. That’s in sharp contrast with the trend from the U.S.’s third and fourth’s largest suppliers: Mexico and Venezuela. Crude oil imports from Mexico have tumbled 25% from September 2012, and Venezuela’s over 22%.
These import numbers show there is still a rock solid economic case for Keystone: Supplanting the dwindling supply of crude from Mexico and Venezuela. Both Mexico and Venezuela export heavy oil, with properties similar to the diluted bitumen that Canadian producers would ship via the Keystone. And heavy oil is the kind of crude U.S. refineries on the Gulf of Mexico, at the other end of the pipeline, are geared to process.
Of course, it wouldn’t be impossible for them to refine the very light oil that, say, comes out from the Bakken region, the epicentre of the fracking revolution. That, though, would require a costly retooling. But it would be silly to take on such an expense when there’s plenty of Canadian oil that makes for a good fit. It would be even sillier to slice up the North America energy market based on national borders, with American oil only being processed by American refiners and Canadian oil likewise feeding exclusively Canuck refineries. The continent is already a jungle of pipelines crossing and re-crossing the border.
America might be on its way to become a net oil exporter, but there’s no reason why this should get in the way of building pipelines that connect different types of oil plays to the refiners best equipped to turn their crude into the petroleum products that feed North America’s economy and the world’s.