Learning from California and the Pacific Rim

Heavy oils are found in 10 of the 14 largest oilfields in Alaska and California. In the US west coast region, petroleum demand is dominated by light transport fuels, and there is a lack of a discrete and conspicuous heavy oil market. The structure and behavior of west coast petroleum markets, and their interactions with crude-oil and petroleum product markets elsewhere on the Pacific Rim are discussed with regard to how the market for growing volumes of western Canadian heavy oils might evolve. An analysis of crude oil prices versus API gravity demonstrates the price penalties on oil of low gravity, high sulfur, and high transport cost. Prices at the high gravity end tend to correlate closely with Asian light crude and unfinished gasoline prices. The heaviest crudes are priced in competition with other chemically similar residual oils for direct fuel use, blending, or refinery feedstock. The biggest component of the west coast heavy oil market is bunker fuel. The market value of heavy crudes in the west coast is thus determined by regional supply and demand for heavy hydrocarbon molecules, whatever the source. The west coast is not a promising market for Canadian heavy crudes, and exports to Asia would have to compete both with residual oils from Asia and the US west coast and with California heavy crudes. US west coast production peaked in 1989 and regional production can be expected to decline further in average gravity. New production from known but undeveloped heavy oil pools near Prudhoe Bay or in the California offshore could be expected to postpone the need for imports to the west coast and to depress prices. A removal of the Alaska crude oil export ban could improve the west coast heavy oil market. 5 refs., 2 figs., 1 tab