Why doesn't Canada refine its own oil?

The main issues why much of Canada's refining is done outside of Canada comes down to demographics, the costs of refining vs. transporting oil and fuels, the relatively short shelf live of refined fuels, and the historical production oil and refining.

In general, it is far more economical to refine fuels near large population centers than refine it near where oil is produced and then transport the fuels. Unfortunately, most of Canada's population is not near its oil production centers (Alberta). There are no oil pipelines to Ontario, Quebec, or British Columbia from Alberta. The lost distance around the Great Lakes and the Rocky Mountains make these expensive routes.

Historically, most of the population of North America has been in the eastern United States and original oil production in Texas and the Gulf. As such, it was economical for the US to build large refining capabilities along the eastern sea board. Oil from Texas/Gulf could easily be refined close to large population centers. It was more economical to just refine extra and sell it to Ontario and Quebec that to try building a massively expensive and long pipeline from Alberta and build refining capabilities there. Similarly with BC, far less expensive to just get oil refined in the western US (from Alaskan oil) than built a long and expensive pipeline across the Rockies. As middle-eastern oil became available, it was still easier to import these into existing facilities in the southern US and put them into existing pipelines and refineries.

Over the years, this has changed little. Alberta does refine a lot of fuels. However, transporting oil to other areas of the country with large populations is still not terribly economical. Ontario and Quebec do have some refining capabilities, but they get oil from the middle east. It's still cheaper to import excess fuels from the US than build a pipeline from Alberta.

The main reason to build the Keystone XL pipeline to the US was to allow the US to increase the amount of Canadian oil which the US could refine into fuels for Canada. This would allow Canada to reduce the amount of imported oil... essentially allowing the US to use Canadian oil rather than middle-eastern or gulf oil for its portion of fuels to be refined for Canada -- plus likely some of its own. If Keystone does not go through... I would expect a serious push in Canada to construct a pipeline from Alberta north around the Great Lakes and increase oil refining in Ontario. This is an extremely expensive and environmentally sensitive option (it would cross many rivers flowing into the Great Lakes). However, at some point economics and environmentalism may give way to middle eastern oil supply issues.

Oil Refineries In Canada

the purpose of the Keystone XL is to export Canada's abundant shale oil to foreign (non-American) markets for sale. the primary consumer will be China. This oil is shipped as crude, not refined products. Canada already has crude pipelines that go to refineries in the USA for the American market. Anyone who has been to Calgary has noticed that Canada does indeed refine oil for its own needs.

We do refine our own oil and sell a lot of it to other countries because it makes more money. We then buy it at a less expensive price from elsewhere.

Some of our oil is used in Canada we don't sell it all.