Wires

WRAPUP 2-BP to export US crude to Canada, Shell seeks permit

Share

* BP, Shell and Vitol eyeing US crude exports to Canada

* Shale oil boom reshapes world energy flows

(Adds quotes, Shell spokeswoman comments, context, details)

By David Sheppard and Chris Baltimore

NEW YORK/HOUSTON, Oct 11 (Reuters) - Oil major BP Plchas secured U.S. government permission to ship U.S. crude oil toCanada, and Royal Dutch Shell has applied for an exportlicense, as rising production in the world's top oil consumerupends global energy flows.

A surge in output from shale oil reserves in the Bakken ofNorth Dakota and Eagle Ford of Texas has raised U.S. domesticproduction to the highest level since 1995.

While the United States still imports more than 8 millionbarrels of crude oil per day, a glut of light, sweet crude oilcreated by the controversial hydraulic fracturing or 'fracking'boom could fetch higher prices on international markets.

This summer BP Plc received a license to export crudeoil to specific Canadian refineries from the Bureau of Industryand Security, a branch of the US Commerce Department, a sourcefamiliar with the issue said on Thursday. BP has yet to exportany crude oil on that license, the source said.

Shell spokeswoman Kayla Macke told Reuters they have alsonow applied for a license, but would not comment on likelyexport destinations or the volumes of crude involved.

"We have applied to the Department of Commerce to exportdomestic U.S. crude oil," Macke said, adding that as a globalcommodity, imports and exports would follow supply and demand.

A nearly century-old U.S. law requires companies to get aspecial license to export crude oil. Until recently, there hasbeen little or no demand for overseas shipments, apart from atrickle of crude from Alaska that has been routinely exported.

So far, the export business appears geared toward sendingsupplies of light, sweet Bakken crude from North Dakota to aclutch of Canadian refiners on the East Coast, which areotherwise dependent on costlier European imports.

Those refiners in turn export much of their refined fuel tothe United States. Pipeline bottlenecks have pushed prices inthe U.S. Midwest to more than $20 below international markerBrent crude, which traded above $115 a barrel on Thursday.

Many experts are now watching for signs that companies arepressing for a much more controversial move than shipping oil toCanada: permission to ship crude overseas from the Gulf Coast,allowing traders to sell American oil to importers as far afieldas Argentina.

BOOMING SUPPLIES

The Financial Times first reported the news, sayingSwiss-based trading firm Vitol had also applied for a license,citing people familiar with the matter.

"Other than routine movement between Canada and the UnitedStates, we have not been involved in any crude oil exportrequests," a Vitol spokesman told Reuters, adding they had beenshipping crude to Canada for some time.

U.S. oil production has become a fiercely contested issue inthe Presidential election race, with gasoline and diesel pricesnear $4 a gallon.

Republican nominee Mitt Romney has promised North Americanenergy independence by 2020 by supporting fracking and openingup parts of the Atlantic Coast for drilling.

President Barack Obama wants to cut U.S. oil imports inhalf over the same time period while promoting an"all-of-the-above" policy that backs renewable energy alongsideincreased U.S. production of fossil fuels.

Government data shows U.S. domestic crude oil production hit6.6 million barrels per day last week, the highest level sinceMay 1995 due to the rise in fracking.

But domestic U.S. refiners, especially on the Gulf Coast,have been upgraded to process cheaper, heavier types of crudefrom Mexico or Saudi Arabia, and are often ill-suited forrefining the lighter crudes from fracking.

PRESUMPTION OF APPROVAL

By law, the Department of Commerce cannot confirm or denywhether it has received license applications or grantedlicenses, but companies have been exporting crude oil forseveral decades. Exports to Canada have a "presumption ofapproval," a Commerce spokesperson said in an email.

U.S. crude oil exports to Canada have been growing slowlyand steadily. Shipments reached 77,000 barrels per day (bpd) inJuly, the second-highest volume on record, according to U.S.government data. It was not clear whether the data also countedcrude that was re-imported.

Exports to Canada are double what they were five years ago,but are still a tiny drop next to 8 to 9 million barrels theU.S. imports each day, including 3 million bpd from its northernneighbor.

Lacking pipeline access to Alberta's oil sands, Canadianrefineries in Quebec, Nova Scotia, New Brunswick andNewfoundland are dependent on foreign crude. According to themost recent figures from Canada's National Energy Board, Canadaimported almost 650,000 barrels per day in May, 23 percenthigher than the prior month but down 5.3 percent from May 2012.

While most of the imports come from overseas, U.S. crude canbe exported to Canada by rail, barge or pipeline. Indeed,Enbridge Inc's massive Lakehead pipeline system cantake Bakken crude to the refining hub at Sarnia, Ontario, whilethe 300,000 bpd Irving Oil refiner at Saint John, New Brunswick,is taking railcars of Bakken crude to replace more-expensiveseaborne supplies.

Canadian imports of Bakken crude could rise when Enbridgecompletes its Eastern Access project that will expand thecapacity of its system to handle rising production from NorthDakota and the oil sands and reverse an existing pipeline tobring Western crude as far east as Montreal.

"I believe the assumption that the Commerce Department workson is that crude oil shipped to Canada comes back to the U.S. asproduct. It equals out more or less," said Lucian Pugliaresi,president of the Energy Policy Research Foundation in WashingtonDC.

"The working assumption is that if you were to submit anapplication for a waterbourne export to Brazil or somewhereelse, then Commerce might treat that much different."

(Additional reporting by Jonathan Leff in New York, TimothyGardner, Roberta Rampton and Ayesha Rascoe in Washington andScott Haggett in Calgary; Editing by Bernard Orr)

((d.sheppard@thomsonreuters.com)(+1 646 223 6057)(ReutersMessaging: d.sheppard.thomsonreuters.com@reuters.net))

Keywords: USA CRUDE/EXPORTS