Thanks, Mr. Chairman. Thanks to the committee.
In order to make the most efficient use of my limited time, I'm going to present you with a series of numbers or groups of numbers that illustrate important points about Alberta's oil sands industry. Once I finish with the list, I'll connect the numbers to your discussion about market diversification and I'll suggest a few policy conclusions.
The first set of numbers that I want to start with have to do with oil sands production: 1.5 million, 3 million, and 5 million. The 1.5 million represents current production from the oil sands. Three million is about what we expect in four or five years, and five million is what many industry observers expect over the medium term.
I'll move to the second set of numbers, which are 65%, 72%, 55%, 47%, and 23%. The 65% is the traditional amount of oil sands bitumen that has been upgraded in Alberta over the years; 72% is what former Alberta Premier Stelmach described as his government's aspirational goal for upgrading; 55% is today's reality; 47% is what the Energy Resources Conservation Board predicts will be upgraded in Alberta by 2017; and 23% is what the consultancy Wood Mackenzie predicts will be upgraded by 2025 because almost all of the new production is going to be exported in raw form.
The next number is 22,000. This is the number of Albertans currently employed in upgrading, refining, or petrochemicals. There was a report recently released by the petroleum sector council that predicts that the number going forward will remain at 22,000. Basically, no new jobs in upgrading in Alberta are predicted for the medium- or long-term future.
Next is 17,000 versus 17. Seventeen thousand is the number of jobs that would be created—from a GDP analysis prepared by the Alberta Federation of Labour—if the volume of bitumen exported by the first Keystone Pipeline to the American Midwest were instead upgraded in Alberta. Those are direct and indirect jobs. The number of real jobs that were created by the pipeline over the long term, long-term jobs, was 17. Call me crazy, but given a choice between 17,000 and 17, I would choose 17.
Similarly, for the Northern Gateway pipeline our GDP analysis suggests that if the same volume of bitumen expected to be exported down the Northern Gateway were upgraded in Alberta, we would create 26,000 jobs, indirect and direct, versus 104 permanent jobs, by the industry's own admission at the Northern Gateway pipeline hearings.
Here's another set of numbers: 1.6, five, and seven. The 1.6 represents the number of jobs that are created in extraction-only oil sands development for every million dollars of investment, versus five jobs for every million dollars of investment for upgrading, and seven jobs created for every million dollars in petrochemicals and higher-product refining.
Five hundred million is a number that came from a company called North West Upgrading. They estimated that if their very small upgrader were in operation last year—it's only 37,000 barrels per day—it would have generated $500 million in government revenue in one year from this very small plant, but it's only because it's an upgrader and upgrading to diesel.
In terms of market access, here are some important numbers: 50% and 25%. Only 50% of refineries in our major market, the United States, have the capacity to upgrade unrefined bitumen. They are what we call coking refineries that can take the heavy oil sands and turn them into high-value transportation fuels. The remaining refineries are what we call cracking refineries that cannot process bitumen into high-value transportation fuels. So only 50% of the American market is available to us. In China only 25% of refineries have coking capacity.
The next number is $8 per barrel. In testimony to the National Energy Board on the Northern Gateway pipeline hearings, the expert hired by the Alberta government, a vice-president of Downstream Consulting for a firm called Wood Mackenzie based out of Houston, estimated that we lose $8 per barrel on the sale of our oil from Alberta every time we fill up the coking refineries in our major markets.
So as soon as those 50% of refineries become filled up, they spill into the cracking refineries, which can only turn bitumen into low-value products like asphalt. As soon as that happens, every single barrel that we sell is discounted by $8 per barrel. That's not just the ones that go to the cracking refineries; it's all of them, because the managers of the coking refineries realize that—pardon the pun—they have us over a barrel and they pay less.
Our federation of labour got access to documents previously not released by the Alberta government dealing with upgrading and its implications. The total number of pages was 8,000. There were two documents that we got our hands on. The first one was called “Alberta’s Value Added Oil Sands Opportunities” from two years ago. What it shows is that when we export diluted bitumen, or dilbit, we capture only 35% of the potential value chain. If we upgrade to synthetic crude we capture 70% of the value chain. With gasoline we capture 85% of the value chain. With petrochemical production we capture virtually 100% of the value chain.
The next numbers I will refer to are 40% and 30%. Forty percent was the price differential between the price of west Texas intermediate light sweet crude and the price fetched by Alberta dilbit when our current premier, Alison Redford, started to complain about the bitumen bubble, saying that the growing differential between the prices of the two products was causing a crisis in Alberta.
That leads me to the second document that we got in our freedom of information search. It was a document called the “Oil Sands Fiscal Regime Competitiveness Review”, done by the Alberta government. It demonstrates that over the last 20 years, the differential has actually been about 30%, so the differential is nothing new. The report also showed that when the differential reaches 23%—another important number—upgrading in Alberta actually becomes profitable. So the high differential is actually a good thing for the Alberta economy because it improves the economics of Alberta-based upgrading. Low bitumen prices are actually a real competitive advantage for Canadian upgraders.
Another number I want to draw your attention to is 30%. That is the volume of diluent that needs to be added to bitumen in order to make it flow down pipelines.
I'm going to wrap up with my conclusion. The conclusions based on these numbers—and there are more of them—is that low bitumen prices are not the result of lack of market access. They have to do with several factors. First is the low quality of our oil. Bitumen is not oil; it is a different product. As a result, it fetches a low price, and the overproduction floods our small market. When we fill those 50% of refineries in the States, that's what results in the discount.
Second, low bitumen prices are actually nothing to fear. Low-cost feedstock can actually be seen as a competitive advantage.
Third, producers are not troubled by the low prices for bitumen. If they were, they would be reducing production forecasts. They are not. What this shows is that they can make good profit even with lower prices.
Fourth, many producers, especially with American-based refining capacity, actually prefer low prices for bitumen because it allows them to buy low their feedstock and sell high the value-added product. I would submit to you that's what we should be doing as Canadians.
Fifth, we're selling the wrong product and we're looking at diversification in the wrong way. Instead of looking at geographical diversification of markets, we should be looking at product diversification, which would lead to market diversification. When we sell diluted bitumen, we sell only to the people who have coker refineries, and it's a small number. When we sell synthetic crude, we sell to all refineries in the world because they can handle the capacity. When we sell gasoline, diesel, or other high-value transportation fuels, we sell to everyone who has a car, a truck, or equipment to operate.
To conclude, when we prioritize value-added production over raw exports, everyone in Canada wins. Canadian producers get better prices. Canadian refiners get access to cheaper feedstock. Canadian workers get long-term jobs, some of the best in the economy. Canadian governments get revenue. The only ones who don't win when we prioritize value-added production are Chinese and US refineries, and I submit to you that that should not be this government's priority.