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Canadian Oil Sands and its impact on the United States. New York Energy Forum New York City May 1 2007 Eswaran (Esa) Ramasamy Executive Editor, Global Oil Markets Platts, Calgary. Agenda. Introduction to Platts Introduction to “oil sands” Canadian crude exports to the US - PowerPoint PPT Presentation
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Canadian Oil Sands and its impact on the United States
New York Energy Forum
New York CityMay 1 2007
Eswaran (Esa) RamasamyExecutive Editor, Global Oil MarketsPlatts, Calgary
2
Agenda
• Introduction to Platts
• Introduction to “oil sands”
• Canadian crude exports to the US
• Impact of Canadian crude on US crude oil markets
• Q & A
3
Introduction to Platts
The McGraw-Hill Companies
4
Platts Global Reach
Washington
London
Bonn
Moscow
Hong Kong
Singapore
Sydney
Dubai
Paris
Buenos Aires
Guangzhou
Calgary
Mexico City
Boston BeijingBoulder
HoustonTokyoNew York
5
Platts’ Scope
100 year tradition in facilitating open and transparent markets
Over 10,000 customers across over 150 countries
Customers include 200 government agencies in 36 countries
2/3 of global petroleum transactions settle on a Platts price
Over 600 quotes annually from Platts editors in major media
Platts executives help to explain energy markets
6
Oil Sands
Oil Sands mined & in-situ methods used to separate oil
from sand
Crude OilPractically all of the crude derived from oil sands is heavy crude with an average API of
20-22 or what is commonly known as bitumen
Synthetic crudeUpgraded bitumen through a coking process that
“lightens” the oil
7
Oil Sands . . .
Oil Sands – refers to the mixture of sand and oil – found largely in northern Alberta
Crude oil accounts for about 18% of oil sands
composition
It takes about two mt of oil sands to produce 1.2 barrels of bitumen
And 1.2 bitumen to produce 1 barrel of synthetic crude
8
Oil Sands . . .
$12.87$10.69
$23.56
$6.99$9.58
0%
20%
40%
60%
80%
100%
Production costs
Royalty
Nat. gas
SSB
Upgrading
Bitumen
Source: Canadian Oil Sands Trust
Cost of SSB production: $40.13/bbl
9
Canada & Oil Sands
Canada has bitumen reserves of about 175 billion barrels – second only to Saudi Arabia – CAPP
Canada offers the most secure source of supply of crude oil to the United States
Canada is the most stable crude producer in the world
Canada is the largest supplier of energy to the US
10
Canada & Oil Sands . . .
• CAPP estimates bitumen production to rise to 2.9-3.5 million b/d by 2015
• By 2015 – it is estimated that Alberta would have slightly more than 3.0 million b/d of upgrading capacity or the ability to produce 2.5 million b/d of synthetic crude
• AEUB believes bitumen production from Alberta would reach 4.66 million b/d in 2025 from the current estimate of 1.2 million b/d
• Most of these output would most likely end up in the US
11
Canada & Oil Sands . . .
1807 18281970 2072 2138 2181
2303
0
500
1000
1500
2000
2500
2000 2001 2002 2003 2004 2005 2006
Source: EIA
1.2% 7.8% 5.2% 3.2% 2.0% 5.6%
Total Canadian crude oil exports to the US (‘000 b/d)
12
Canada & Oil Sands . . .
Source: National Energy Board
896 980 1020 1080 1151
0
200
400
600
800
1000
1200
2002 2003 2004 2005 2006
Heavy Crude Exports ('000 b/d)
9.4% 4.1% 5.9% 6.6%
13
Canada & Oil Sands . . .
Heavy Crude Exports by PADD ('000 b/d)
0
100
200
300
400
500
600
700
800
900
PADD 1 PADD 2 PADD 3 PADD 4 PADD 5 Others
Source: National Energy Board
14
Canada & Oil Sands
• Total Canadian crude production is expected to reach 4.5-4.8 million b/d by 2015
• About 20% of this output would be convention crudes – Hibernia, Terra Nova and White Rose from Atlantic Canada
• Bitumen production to be 3.5-3.8 million b/d
15
Canada & Oil Sands – the Future
• More pipelines – movement of more Western Canada crudes into PADD 1, 2, 4 & 5
• Expansion & reversal of existing pipelines to move Western Canadian crudes into the Gulf Coast
• Upgrading of refiners in Gulf Coast to run Canadian heavy
• Narrow WTI-Dubai spread – Is WTI weak or is Dubai relatively stronger
• Is WTI reflecting economics of Cushing area or that of the US ?
16
More pipelines . . .
• Enbridge expanding Spearhead line from Chicago to Cushing Current capacity at 125,000 b/d Expansion to 190,000 b/d – early 2009 Further expansion to 260,000 b/d – 2010
• ExxonMobil’s 66,000 b/d Pegasus pipeline from Patoka to Nederland (reversal complete in April 2006)
• TransCanada’s Keystone project 450,000 b/d from Hardisty to Wood River to Cushing in 2009
• BP’s proposed reversal of its 100,000 b/d Cushing to Chicago crude line – mid 2009 with possibility of expanding to 200,000 b/d
17
More pipelines . . .
• Kinder Morgan expanding Trans Mountain line from current 260,000 b/d to 300,000 b/d in 2008 and 400,000 b/d in 2009.
• Enbridge’s move to expand/build new 300,000 b/d line from Chicago to Philadelphia, Baltimore or New Jersey.
• Teppco’s 350,000 b/d jv Seaway pipeline linked to Enbridge’s Spearhead.
• Enbridge’s plan to build a 400,000 b/d Alberta-Texas line.
• Altex Energy’s 250,000 b/d Alberta-Gulf Coast line – due in 2011-2012.
18
Pipelines . . .
19
Canadian exports – Impact on US
• Is Canada hooked on PADD II for outlets ?
• Evidence shows though Canadian exports are targeting the US – efforts are underway to develop markets within Canada – ie, in PADD II and PADD III (Gulf Coast)
• As more modifications are done refiners in PADD IV – demand for Canadian crudes would rise from refiners in Colorado, Montana and Wyoming
20
Canada exports & US . . .
• What does all these Canadian exports have on WTI Startup of Spearhead in March 2006 did have bearish impact
on WTI Startup of Pegasus line in April 2006 also did have a bearish
impact on WTI
Cash WTI ($/bbl)
45.00
55.00
65.00
75.00
85.00
1/3/
2006
2/3/
2006
3/3/
2006
4/3/
2006
5/3/
2006
6/3/
2006
7/3/
2006
8/3/
2006
9/3/
2006
10/3
/200
6
11/3
/200
6
12/3
/200
6
1/3/
2007
2/3/
2007
3/3/
2007
Spearhead
Pegasus
21
Canada exports & the US
WTI's Contango ($/bbl)
-7.0
-6.0
-5.0
-4.0
-3.0
-2.0
-1.0
0.0
2/1/
06
3/1/
06
4/1/
06
5/1/
06
6/1/
06
7/1/
06
8/1/
06
9/1/
06
10/1
/06
11/1
/06
12/1
/06
1/1/
07
2/1/
07
3/1/
07
4/1/
07
Spearhead
Pegasus
22
WTI – benchmark status questioned
• In March, value of Brent rose well above WTI
• Leading many players to question if WTI truly represents US crude supply demand or that of Cushing alone.
• Outage of McKee refinery in February cause of WTI going into contango – while WTI-Brent spread inverts and WTI-Dubai spread narrows sharply.
23
WTI - benchmark status questioned
Brent-WTI spread
-2-1.5
-1-0.5
00.5
11.5
22.5
33.5
44.5
55.5
6
McKee outage
Whiting problem
24
WTI . . .
• McKee outage trapped WTI within in Cushing
• Ability of WTI to move north via other pipelines was also limited because of Whiting refinery problems in late March added to WTI’s contango
• Incoming Canadian WCS & Syncrude added to the problem
• Leading many to question WTI’s ability to reflect US crude demand/supply balance as opposed to Cushing’s supply/demand balance
25
WTI . . .
• What is interesting of the current WTI-Brent inversion – has happened in the past – but now it has stretched itself all the way to H1 2008
• Benchmarks have in past been inverted – when Dubai was higher than Brent – but this was short term phenomenon
• In the case WTI – some think the fundamentals have changed and that there is no reason why WTI must be higher than Brent – other than for linear reasons
26
Cushing crude oil storage capacity
0.00
5.00
10.00
15.00
20.00
25.00
30.00
35.00
40.00
45.00
Enbridge BP Plains SemGroup TEPPCO Total
2007 end-2007
Source: Platts
2007 end-2007Enbridge 12.80 16.70BP 10.00 10.00Plains 7.40 10.60SemG 4.30 4.30TEPPCO 1.95 1.95Total 36.45 43.55All figures in million barrels
27
WTI-Brent swaps spread . . .
-3-2-101
May June Q32007
Q42007
Q12008
2008
1-Feb 1-Mar 1-Apr 25-Apr
`
28
WTI . . .
• While WTI was being inverted to Brent – the WTI-Dubai spread was also crunching in sharply
• On May 12 – at the close of the Asian day – the May NYMEX WTI-Dubai swaps spread narrowed to an all time low of +$0.87/bbl
• What the narrow WTI-Dubai spread implied was that Latin sour crudes would now move to Asia – also exerts bullishness on US sour crudes