Thank you.
Mr. Chair, there are a number of reasons that drive it. To underline the policy of the Government of Canada, we take a market-based approach; we have had that approach consistently I think since the 1980s. There are a number of factors that drive whether or not it's upgraded in Canada.
One thing to put into perspective is that Canada consumes about 1.8 million barrels of oil per day. If you multiply that out, that puts annual consumption around 650 million barrels a year—it's in that range. We have crude reserves of about 174 billion barrels, of which 170 billion are oil sands. That could grow to about 300 billion barrels, as the technology progresses and it becomes more economically viable. It's a massive reserve. Most people don't understand just how huge the oil sands actually are. It will be exported; it's way bigger than anything Canadians could ever use for the next couple of hundred years.
As to where that is actually upgraded and refined, it depends on a number of factors. As we said, one factor is capital cost. As Peter mentioned, the cost of a new refinery is probably in the range of $7 billion to $10 billion; one doing heavy crude is going to be more expensive, and this is heavy crude.
The other analogy I heard was that saying we shouldn't be shipping diluted bitumen is like saying we shouldn't be shipping wheat, we should be shipping baked products only. I think that was one of the analogies that was used. But actually, diluted bitumen does have a high value as an export.
Another factor is contamination. If you're doing pipelines and stuff like that, it's actually cheaper and easier sometimes to ship crude than it is to ship multiple products, as we mentioned.
Seasonality and fuel specifications are other reasons for why gasoline, in particular, is often refined closer to markets.
Those are some of the things that actually drive it. The Province of Alberta—again, I have to underline that the provinces are responsible for the resource—does have a goal of two-thirds of the oil sands being upgraded by 2020. As a province, they've been really promoting it, but in the end it's the market that actually dictates it. I think you can look at it and say the fact that we do have surplus refining capacity right now, with our refineries operating at about 80%-83% of their capacities when the ideal is closer to 93% on the refining side, makes it difficult to make the case that we should be building more refineries in Canada.
Upgrading kind of fits into that picture as well. There are a number of refineries that are set up to do heavy crude. As Peter was pointing out, often that includes the upgrading side of it in the gulf coast. The market basically decides that a lot of that should be shipped to be refined there, and that's probably why the market is doing that.