Good morning. Bonjour.
Extending an opportunity to benefit from the development of the oil and gas industry across Canada is a Canadian energy strategy. Maximizing that benefit to all Canadians is a “Canada-first” Canadian energy strategy.
The terms “oil sands” or “tar sands” refer to the same thing and are commonly used to frame the issues politically. This brief uses the scientifically correct and politically neutral term “bitumen sands”. By definition, bitumen is crude, having a density greater than fresh water.
Alberta enjoys a total original oil-in-place resource of 2,268 billion barrels. This exceeds estimates of 1,300 billion barrels by the United States Geological Survey for Venezuela's oil resource, and 716 billion barrels for Saudi Arabia's oil resource, the other rivals for the largest oil resources on earth, combined.
Alberta's oil reserves are sourced in the following ways: by strip mining shallow bitumen sands deposits, where 90% recovery of original oil-in-place is achieved; by in situ extraction of bitumen sands in deeper deposits using cyclic steam stimulation, now achieving recovery factors of 35% to 40%; by steam-assisted gravity drainage, typically achieving recovery factors exceeding 50%, and sometimes up to 70%; by in situ extraction of bitumen carbonate deposits, where two successful commercial-scale pilot projects in the Grosmont deposit are now both proceeding to full scale-development; and by multiple fracking of horizontal wells in tight oil shales containing a large oil resource little developed as yet, but classed as “proved undeveloped”, based on success exploiting analogous tight oil shales in the U.S.
These recent developments and improvements in recovery factors indicate Alberta's proved oil reserves are 848 billion barrels. Alberta's oil resource and proved reserves are the largest on earth by far.
The ERCB's reserves estimates widely reported as proved are in fact established reserves—a very restricted subclass of proved reserves, as detailed in the appendix to this brief—and vastly underestimate Alberta's oil reserves, especially in comparison to proved reserves of other countries.
In valuing Alberta's proved oil reserves, raw bitumen is valued at production costs of about $35 to $50 a barrel. Dilbit obtains the benchmark Western Canada Select price of about $60 to $75 a barrel. Upgraded bitumen, or syncrude, obtains the WTI price of $85 to $100 a barrel, and requires no diluent. Syncrude and conventional crudes obtain the Brent price of $105 to $115 a barrel at tidewater. Refined products such as gasoline and diesel obtain $200 a barrel at retail of $1.25 a litre, and U.S. $160 a barrel at U.S. retail of U.S. $3.80 per U.S. gallon.
The undiscounted value of Alberta's 848 billion barrels of proved oil reserves at $100 a barrel is $84.8 trillion, equivalent to $2.4 million for each and every Canadian.
However, economic benefits accruing to Canadians as a result of developing the oil and gas industry fall far short of potential.
This is due, first, to foreign ownership of bitumen production, which is currently estimated at 50% to 70%.
Second, it's due to exports of low value raw bitumen as dilbit because all in situ projects produce dilbit, of which only about 7% is upgraded at this time. The recently commissioned Imperial/ExxonMobil Kearl and, in development, Suncor Fort Hills projects, the first bitumen sands strip mines without upgraders, together with Imperial/ExxonMobil's announced Kearl in situ project, will produce a total of 687,000 barrels per day of raw bitumen, contained in almost 1 million barrels a day of dilbit for export.
Third, it's due to Alberta bitumen royalties of only 1% to 9% until project payout. In 2012, Alberta produced 1.5 billion barrels of oil equivalent, and collected $6.13 billion in non-renewable royalties, which is only $4 per barrel of oil equivalent.
Fourth, on Alberta's subsidy of raw bitumen production, which effectively encourages the export of raw bitumen, this disadvantages companies that upgrade bitumen and denies Canadians added value and tax revenues.
Fifth, with regard to high diluent costs, the cost to purchase diluent on the gulf coast at a premium to West Texas Intermediate, pipeline it to northern Alberta, pipeline it back to the gulf coast as dilbit, and then sell it as dilbit at a discount to WTI, approaches $25 per barrel of bitumen. As a result, Canadians are receiving not much more than 15% of the potential economic benefit of proved bitumen reserves.
Additional take-away capacity from new infrastructure projects, such as Energy East and a potential Energy East line 2, expansion of the Trans Mountain pipeline to Vancouver, expansion of Enbridge's Canadian mainline, reversal of Enbridge's line 9 in Ontario, and new railcar crude oil terminals in Alberta, will add 4 million barrels per day. That will be sufficient until about 2028, making Northern Gateway and Keystone XL pipelines unnecessary until then.
In conclusion, Alberta’s crude oil resources and proved reserves are the largest on earth, by far. Increasing exports of low-value dilbit, high foreign ownership, costs of diluent, low bitumen royalties before project payout, and subsidies for exports of dilbit, result in failure to capture more than a fraction of the potential economic benefits of the largest oil reserves on earth.
New pipelines connected to bitumen upgraders in Alberta, and refineries and marine terminals on Canada’s east and west coasts, maximize the cross-Canada value of the largest oil reserves on earth, provide energy security, and by adding 4 million barrels a day of capacity, together with new crude rail terminals, make low-value export pipelines such as Keystone XL and Northern Gateway unnecessary until 2028.
Thank you.