Natural Resources Committee on Jan. 31st, 2012

[Mark Corey]

The Alberta objective is to upgrade two-thirds by 2020. Just to give you an idea of what that means in terms of big numbers, we have seven upgraders right now. We estimate that would require an additional four upgraders to meet that requirement. It's in that ballpark.

[David Anderson, Conservative, Cypress Hills—Grasslands, SK]

Do you know what percentage of that would be used in western Canada and how much will be exported?

[Mark Corey]

I'm not sure, but we could check and see what numbers we could get for you on that. I don't have that with me today.

[David Anderson, Conservative, Cypress Hills—Grasslands, SK]

Okay.

I have another question. I'm wondering what percentage of our petroleum products end up in manufactured goods and plastics and those kinds of things. Do you know what we're refining? We've got the breakdown of all of the fuel products, but I'm just wondering, for some of those other products, is that percentage significant in Canada or not?

[Peter Boag]

I don't have the latest figures with me, but in terms of overall refinery production in Canada, a relatively small percentage of our output from refineries is petrochemical feedstocks. The large majority of it is fuel products; probably 90% to 95% is fuel products, and probably somewhere under 10%, maybe closer to 5%, is petrochemical feedstocks.

[David Anderson, Conservative, Cypress Hills—Grasslands, SK]

Maybe you're the wrong people to ask, but is there a potential in Canada to further develop that aspect of our petroleum industry?

[Peter Boag]

Again, you'd have to ask the chemical people, not me. I'm not particularly an expert on that sector.

[The Chair, Conservative, Leon Benoit]

Thank you, Mr. Anderson. Your time is up.

We'll go to Mr. Allen for up to five minutes. Go ahead, please.

[Mike Allen, Conservative, Tobique—Mactaquac, NB]

Thank you very much, Mr. Chair, and thank you to our witnesses for being here today.

I want to follow up quickly on Mr. Anderson's comment on the upgraders, and then I want to talk a little about the flow of west to east, to seize a little more on that.

You mentioned four new upgraders, and if I understand correctly, the cost would be somewhere in the area of $7 billion to $10 billion apiece for each of these upgraders. Is that true?

[Mark Corey]

I believe it's about $3 billion. The $7 billion I think was actually for a refinery.

[Mike Allen, Conservative, Tobique—Mactaquac, NB]

Okay. So you're talking about $3 billion.

What is the potential? Some estimates suggest that Alberta is already well over 150,000 workers short now. In terms of trying to develop these actual upgraders, do we have the labour resources to get that done?

[Mark Corey]

Mr. Chair, again, I think this is something that Alberta has been going through in the recent past. Something they're obviously quite focused on is making sure they do have the labour skills. The good news is that they're generating good, high-paying jobs in the resource industry. That is an attraction for people to work there. When you go to the oil sands, obviously, people from all over Canada are working there.

It's a pressure that has to be managed. Primarily, the province is responsible for that, so it's the province that's really focused on making sure they can develop the labour force with the skills they need, because these largely are skilled jobs that are being developed.

It's a good question, and it's one that I think the province is dealing with.

[Mike Allen, Conservative, Tobique—Mactaquac, NB]

Okay.

In terms of moving the product from west to east, you talked about Enbridge line 9 actually being reversed into Montreal. If you wanted to move that product all the way down to the Irving refinery, for example, what would that take? Would that take a new pipeline going from Montreal into New Brunswick? Or what would be the implications of that?

[Mark Corey]

The way it works right now is that we do have pipeline capacity all the way to Montreal. Again, line 9 from Montreal moves from east to west. Some have been speculating that Enbridge may eventually apply to have that reversed. They haven't yet. I can't really comment on whether or not that would be reversed; it's a market decision. But it is possible. That infrastructure is there.

In Montreal, again, I guess it's what they call “barges”; basically they're moving crude into Montreal right now. They could possibly..... I mean, theoretically they could be moving it out of Montreal.

You also have for Montreal the pipeline that goes from Portland to Montreal. It flows in that direction right now. I know there's been speculation; I believe there was even an application at one point in the past, in the recent past, to reverse that. That's a two-300,000-barrel-per-day pipeline, so that's 600,000 barrels per day of capacity, which would link Montreal to the eastern seaboard. At that point they could.... I mean, again it's theoretical; you're asking what pipelines are there, and that pipeline is there. Portland is on tidewater. It could be serving the U.S. east coast and the Canadian east coast by ship as well.

[Mike Allen, Conservative, Tobique—Mactaquac, NB]

Does that give us the best value for dollar for every barrel of crude that we're bringing out, though? If we're continually going into the U.S. market, is that getting us the best value for our dollar? If we're going to export it anyway, does that get the best value?

[Mark Corey]

The way the oil markets work right now is that you have to look at two prices: West Texas Intermediate, which is really the price in Cushing, Oklahoma, which is sort of the central hub for North America, and then Brent, which is the North Sea price, which is sort of considered, too, the world price.

Once you get oil to tidewater, it's into the international market. The market basically adjusts once you get it to tidewater. The differential between those two has been up to $25 per barrel in the past. I think it's around $10....

Sorry, is it $13 today?

[A voice]

Yes.

[Mark Corey]

It's about $13 today. Recently it was down to $9. So it fluctuates.

The principal reason for that differential is that there's a bottleneck in Cushing—from Cushing, for example, to the gulf coast. We can get lots of crude to Cushing, and then moving it beyond that there's a bit of a bottleneck. I'm just quoting what the industry says, but their view is that when you can de-bottleneck Cushing and get it past Cushing to, for example, the gulf coast refineries, you'll see these two prices come more into line. So to the extent that we do get oil to tidewater and it enters the international market, that's where the two price levels come more into line.

There was a recent study done by a university in Alberta—I think it was the University of Alberta—that basically underlined the fact that if you're selling your oil at somewhere like $13 a barrel less than what it's getting for Brent, and you multiply that by a couple of million dollars a day, it's a lot of money that you're leaving on the table. That's one of the reasons for the push to get Canadian oil to international markets.

I think our minister has been pretty clear on that. The U.S. is our best friend, our closest trading partner. We have great economic relations with the U.S., but strategically it would be wise of us as well to diversify beyond the U.S. market to make sure we're getting the best price possible for our crude.

[Mike Allen, Conservative, Tobique—Mactaquac, NB]

Thank you.

[The Chair, Conservative, Leon Benoit]

Thank you, Mr. Allen.

We go now to Mr. Stewart, for up to five minutes. Go ahead, please.

[Kennedy Stewart, NDP, Burnaby—Douglas, BC]

Thank you very much for coming today and for all of your presentations.

I put in a motion to ask for this study for slightly selfish reasons, because my riding is Burnaby—Douglas and we are “petroleum central” in British Columbia. The only remaining major refinery in British Columbia is in my riding of Burnaby—Douglas. I have talked a number of times with the managers there and they told me there's a real danger that this refinery may close because they're having a hard time outbidding Chinese bidders for the crude oil that's coming down the Kinder Morgan pipeline. They said they may have even more trouble competing if this pipeline is doubled. There's a real concern within my riding that this refinery is going to close.

We used to have two other refineries in my riding. They've closed, and as you've said in your presentations, refineries are closing right across Canada.

Now, Mr. Corey, I just looked at page 7 of your presentation. You point these facts out—that there were 44 refineries in the 1960s and we have 15 today. You also say that Canada now has more refining capacity, but when I look at your graph on page 7, the second graph at the bottom, that statement doesn't seem quite true to me. I would have a different interpretation of your graph.

We may have more refining capacity than we did in the 1960s, but when you look at our peak capacity, that was in the late 1970s and early 1980s. At that point in the late 1970s and early 1980s, our capacity was over two million barrels a day—about 2.2 million or 2.3 million—but now we're under two million barrels. What that says to me is that we're actually losing capacity from our peak capacity of the 1970s. It's not that we're replacing them, as in these refineries are getting bigger and there are fewer of them, but our capacity is actually dwindling.

That is alarming to me. Not only is our capacity dwindling and the number of refineries is dwindling, but also you're saying our capacity is much lower. We're running at about 85%, when we used to run at 90%. The story that's telling me is that we're having a decline in refining in Canada. This is worrying because it almost puts us in this absurd position of being the only major oil superpower that someday may be importing refined products.

I'm just wondering if you agree with my characterization of that or if perhaps you see a different outcome. Maybe you could let us have your thoughts on how our refining is going to go on in the future.

[The Chair, Conservative, Leon Benoit]

Go ahead, Mr. Corey.

[Mark Corey]

Mr. Chair, again, the graph basically shows that from the 1960s up until the late 1970s we were ramping up. We had the price shocks in the late 1970s. From that point, cars have become more efficient, houses have become more efficient, Canada has become more efficient, and demand has kind of flattened out. When you look at the capacity again, yes, you're right, the number of refineries has dropped, but the capacity of the refineries has expanded, so they're becoming bigger, more efficient refineries.

When you look at the capacity utilization, that's the key thing, and right now a refinery likes to run at about 95% capacity. In Canada last year, they were running between 80% and 83% capacity, which means they could have produced more, they would have liked to produce more, but they just didn't have the markets for it.

It's not the case that Canada is just starting to import refined products from everywhere else; we actually are net exporters. We refine more than we consume in Canada. It's one of those things that's like a lot of other industries, where you're seeing fewer, bigger, more efficient refineries serving the Canadian marketplace.

[Kennedy Stewart, NDP, Burnaby—Douglas, BC]

I know that in Burnaby we import refined products from the U.S., from the state of Washington. We import quite a lot of jet fuel, for example, by barge. I'm sure that situation is right across Canada, where there is an exchange.

For those short-distance refined products, why can't we increase the amount we refine, as long as the distance is short and we don't get the contamination that you mentioned?

[Peter Boag]

Ultimately, I think it comes down to economics.

It makes more economic sense, rather than producing a small amount of this product and a small amount of that product and a small amount of another product, to focus on achieving economies of scale and producing a lot of one product and perhaps even exporting some of that product. For those other products, of which you would be able to produce small amounts but at a much higher cost, it then makes more economic sense to import them.

When we look across Canada, yes, it's not consistent. We export from every refinery in Canada. We have a mix of products; some are imported and some are exported. It's really to maximize the economic efficiency. The bottom line is that at the end of the day, we are a net exporter of refined products to about 20% of our capacity in a very competitive North American market. We think that's a pretty positive story for Canada.

Our focus today is how we can continue to maintain a viable and competitive refining sector in Canada so that we can, at the very least, maintain our market share in that in North America, and on a more positive basis, if possible, grow that market share, recognizing that there are economic and competitive realities.