Five, solid.
Evidence of meeting #70 for Finance in the 41st Parliament, 2nd Session. (The original version is on Parliament’s site, as are the minutes.) The winning word was prices.
A recording is available from Parliament.
Evidence of meeting #70 for Finance in the 41st Parliament, 2nd Session. (The original version is on Parliament’s site, as are the minutes.) The winning word was prices.
A recording is available from Parliament.
11:05 a.m.
Senior Economist and Business Strategist, Packers Plus Energy Services
Five, solid.
11:05 a.m.
NDP
Nathan Cullen NDP Skeena—Bulkley Valley, BC
Five years at least.
Is there a lot of difference between what I'm seeing now and the oil price?
11:05 a.m.
Senior Economist and Business Strategist, Packers Plus Energy Services
The difference is in the magnitude. This should have been addressed earlier, but there are approximately 93 million barrels a day of consumption expected in global oil markets in 2015. Current production is just over 94.5 barrels a day, so the excess supply looks to be about 1.5 million barrels. It might be as much as two million barrels, but as a percentage of global demand—
11:05 a.m.
NDP
11:05 a.m.
Senior Economist and Business Strategist, Packers Plus Energy Services
Yes. It's not egregious.
11:05 a.m.
NDP
Nathan Cullen NDP Skeena—Bulkley Valley, BC
So a large increase in supply on gas has a depressive effect on gas prices for a longer time. A large increase on supply on oil is slightly different, is your argument, simply because the scale is different.
11:10 a.m.
Senior Economist and Business Strategist, Packers Plus Energy Services
Yes, the oversupply in gas—gas being trapped in North America—was much larger. Most wells don't produce exclusively oil or gas. What happened in the last number of years when gas prices collapsed and oil prices went up, people drilled for liquids, and they got associated dry gas with that. Gas volumes continued to be produced, and whether or not somebody could make money on it was immaterial because they were making money on the liquids they were producing.
11:10 a.m.
NDP
Nathan Cullen NDP Skeena—Bulkley Valley, BC
Thank you.
I want to get to this question about discount for a moment. There's a discount on Canadian bitumen. Is that correct, Mr. Leach?
11:10 a.m.
Associate Professor, Alberta School of Business, University of Alberta, As an Individual
Absolutely.
11:10 a.m.
NDP
Nathan Cullen NDP Skeena—Bulkley Valley, BC
What is the different manufacturing cost for bitumen versus other oil products?
11:10 a.m.
Associate Professor, Alberta School of Business, University of Alberta, As an Individual
It depends a lot on the facility that you're putting it in, but generally speaking, globally, the heavy differentials reflect that processing cost. So if you think of a Maya to Brent differential, seven or eight dollars a barrel reflects two things. It reflects the processing cost. It also reflects the yield that you get out of a refinery, so you get a lower value mix of products out and you put more energy in to process it in a more complex refinery, so all of those things together—
11:10 a.m.
NDP
Nathan Cullen NDP Skeena—Bulkley Valley, BC
Makes our product, the bitumen product, a more expensive product to deal with—
11:10 a.m.
Associate Professor, Alberta School of Business, University of Alberta, As an Individual
More expensive and less valuable.
11:10 a.m.
NDP
Nathan Cullen NDP Skeena—Bulkley Valley, BC
—and less valuable. That contributes to there being a discount for Canadian bitumen.
11:10 a.m.
Associate Professor, Alberta School of Business, University of Alberta, As an Individual
Yes.
11:10 a.m.
NDP
Nathan Cullen NDP Skeena—Bulkley Valley, BC
I heard seven or eight dollars. I heard more depending, again, on the refinery that you're dealing with, the system that you're going into. The obsession about tidewater, I get it; it's a diversification of the market. Is it fair to say that the discount for Canadian oil is exclusively about market access? Or is it also the contributing factor to this higher input cost and fewer products coming out the other end at a lower value?
11:10 a.m.
Associate Professor, Alberta School of Business, University of Alberta, As an Individual
It's wrong to assume that a pipeline is going to turn bitumen into light oil. If you ship it to the coast, it's still going to trade at a discount that reflects its quality. You just lose that geographic discount.
11:10 a.m.
NDP
Nathan Cullen NDP Skeena—Bulkley Valley, BC
I've been taking a look at the gap between Brent and WTI. It fluctuates a bit, sitting at $10 to $11 today. It averages out less than that over the last year. Sometimes it's negative. WTI has gone in the other direction and been worth more, so it fluctuates as well.
One of the questions posed at the last panel was this. If we're looking at $50 a barrel—and we're going to take that price point, and it's been that way for a few months—are there any opportunities for the Canadian energy sector? Let's focus on that. We'll talk manufacturing later. Right now, does that $50 barrel offer us opportunities in terms of a change of policy and change of direction for the Canadian economy?
I'll start with you, Mr. Leach, and then perhaps Mr. McLellan or Mr. Schaefer could add in.
11:10 a.m.
Associate Professor, Alberta School of Business, University of Alberta, As an Individual
Certainly for anybody that burns oil or that uses oil, and refineries are included in that lower price, available feedstock is an advantage to them. In terms of the Canadian economy and comparative advantage, what we have that other people don't have is a massive oil resource. The world being flooded in oil, that's pretty well unconditionally bad news for our wealth as a country and for our comparative advantage as a country.
11:10 a.m.
NDP
Nathan Cullen NDP Skeena—Bulkley Valley, BC
It's so interesting to spend so much time on this.
Thank you.
11:10 a.m.
Conservative
Ron Cannan Conservative Kelowna—Lake Country, BC
Thanks to the ladies and gentlemen for being here today. It's another very informative discussion. I just want to jump right into the questions.
First of all, for Mr. Leach, I know my chief of staff follows you very well. I appreciate your comments. I'm from Edmonton originally as well, and spent time at U of A. We appreciate your opportunity to provide your experience here for our panel.
You were here earlier for the previous witnesses, who brought up The Economist magazine and how the Saudis and OPEC is indicating 400,000 additional barrels a day for 2015 and beyond. How long this goes on, we're not sure. Then our fine chair did a good summary as far as what the impact is.
I'm just wondering whether you believe the energy sector is in a crisis right now, and maybe elaborate on why you think the Saudis have done this at this particular time.
11:10 a.m.
Associate Professor, Alberta School of Business, University of Alberta, As an Individual
I think unconditionally you could call this a crisis in the sense that the price of your product has decreased by roughly 50%. There's almost no other way you can slice that.
In terms of what the Saudis are doing, I think it's the most talked about non-action that we've seen in global oil markets. They really haven't done very much. You talk about 400,000 barrels a day. That's a rounding error essentially on their production. If you look at most of what we talk about in terms of global oil production increase, it's not coming from the Saudis. It's coming from the small producers in the U.S. It's coming from our producers, etc.
I think what the Saudis would rightly see is that their ability or the OPEC's ability to wield their market power now is reduced by the fact that you have this new technology that Mr. McLellan talked about. You can drill a well, bring a well into production, and produce half the oil it's ever going to produce in about the first 12 to 18 months. It's hard to wield market power in that world because you pull production back now, you let prices go up and all of those rigs come back to activity. All those wells come back online, etc., so it's just a different environment for OPEC to be in. What you see from their actions is that, if anything, they're being less aggressive. They're not really flooding the market with any new production.
11:15 a.m.
Conservative
Ron Cannan Conservative Kelowna—Lake Country, BC
Okay, thanks.
Moving to Ms. Kent, I appreciate your industry helping and your association trying to help build Canada into a global clean energy superpower. I've been to several of the committee meetings over the years. Maybe you could expand, for the committee's sake, how this situation impacts the production of ethanol fuel from an energy supplier perspective.
