Canadian oil in Asia won't raise Middle East ire -witness

CALGARY, Alberta, Sept 17 Mon Sep 17, 2012 5:01pm EDT

CALGARY, Alberta, Sept 17 (Reuters) - Asian oil markets should easily absorb the half million barrels per day they would get via Enbridge Inc's proposed Northern Gateway pipeline in Canada, raising little ire among traditional Middle East suppliers, an energy market expert said on Monday.

Volumes that would flow through Enbridge's proposed C$6 billion ($6.2 billion) pipeline to Canada's West Coast, for shipment across the Pacific, are not large enough to shock Chinese and other northern Asian markets, Neil Earnest, a witness for Enbridge, said at public hearings in Edmonton into the contentious project.

Northern Gateway has been touted as a way for Western Canadian oil producers to garner higher returns for their production, which is now priced against a discounted North American benchmark in glutted U.S. Midwest markets. It faces stiff opposition from environmentalists and several British Columbia native groups.

"In the context of the global crude markets, Northern Gateway is a fairly small project. I don't think you'll see a dramatic reaction on the part of the Mideast crude producers," said Earnest, vice-president of Muse Stancil, a Dallas-based consultancy that authored a report for Enbridge into Gateway's expected market impact as part of its regulatory application.

"Certainly we didn't see any particular reaction when the Russians started pushing more crude into this particular market."

Northern Gateway would open up lucrative new markets for 525,000 barrels per day of Canada's oil sands-derived crude, but Earnest stressed that it would not alter global crude supplies. Some shipments that may now reach Asian refineries would find their way to new markets in other parts of the world, he said in response to questioning by British Columbia-based intervenor Terry Vulcano.

"To the extent that the Canadian crude producers, or generally Canada, ships more crude oil to northeast Asia, and lowering demand for Mid-East crudes, perhaps, in northeast Asia, that simultaneously means that somewhere else in the world - quite likely North America - there will be another half million barrels a day of imports," he said.

"The globe will rebalance, but we're not changing global crude supply. The Saudis and others will recognize that."

The current phase of the hearings into the 1,177-km (731-mile) pipeline across the Rockies, before a federal Joint Review Panel, are delving into the financial aspects and economic benefits. At times, questioners discourse departed into other issues, such as the environment, prompting panel Chairwoman Sheila Leggett to sternly guide the questioners back on track.

The Edmonton proceedings represent the first time since the hearings began in January that Enbridge has had the chance to make its own case for the development, a key part of a strategy to diversify oil markets and forge greater energy trade ties with China and other Asian countries.

The other portion is inviting more Asian investment into the country, as shown by CNOOC Ltd's $15.1 billion bid for Calgary-based Nexen Inc, an oil sands producer.

Vulcano asked Earnest if he believed that Middle East oil producers would take steps to remain competitive against incursions into the northern Asian market, where imports averaged 12.16 million bpd in 2010.

Earnest said those producers would do what they could to protect their financial returns, and that would likely mean shifting the displaced volumes to other markets, likely those in the Atlantic basin.

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