AM-13-32 Implications of the North American Oil Renaissance

Description:

This paper discusses and analyzes the medium-term outlook for the North American regional oil markets, using Muse, Stancil & Co.’s (Muse) Crude Market Optimization Model. This analytical tool is a highly detailed crude oil distribution model of North America. Model input variables include: regional crude oil supply by grade (light sweet, heavy sour, etc.); pipeline, barge, and rail capacity and tolls; pipeline volume commitments; individual refinery capacity and refinery-specific constraints throughout North America and Northeast Asia; and the refining value, by throughput tier, of a number of crude oil grades. The model seeks to maximize the netback to the crude producer while simultaneously satisfying the various pipeline and refinery constraints. Model output includes the crude oil flows by transportation mode and the resultant crude oil netback at the point of production. Accordingly, the model and associated analysis of model output provides a powerful quantitative methodology for exploring the implications of differing supply levels and transportation infrastructure options on the North American oil markets. The model has been used to quantify the oil industry 1 Throughout this paper, North America refers to Canada and the U.S. AM-13-32 Page 3 benefits for several multi-billion dollar pipeline projects, including the Northern Gateway project that is currently in the regulatory approval phase. The focus of this paper is on understanding the implications of high capacity connectivity between North America and the waterborne Asia-Pacific crude oil markets, or the lack thereof. Other North American transportation projects also can be analyzed, but only crude oil exports to the sizable Asia-Pacific markets will materially influence the overall North American crude oil balances.