Thank you.
Good morning. My name is Peter Howard. I am president and CEO of the Canadian Energy Research Institute, CERI.
Founded in 1975, CERI is an independent, not-for-profit research institute specializing in the analysis of energy economics related to environmental issues in the energy production, transportation, and consumption sectors. Our mission is to provide relevant, independent, and objective economic research.
CERI is a fully funded institute, with funding coming from the Government of Canada, the Government of the Province of Alberta, the Canadian Association of Petroleum Producers, and in-kind funding from the Alberta Energy Regulator and the University of Calgary.
My comments today will focus separately on the Canadian oil industry and the Canadian gas industry, starting from their current production levels and examining CERI's forecast for the future, while exposing some of the future challenges.
Facts about the Canadian oil industry for 2013 include: conventional light crude and condensate production averaged 842,545 barrels per day; conventional heavy crude averaged 451,618 barrels per day; upgraded bitumen averaged 961,000 barrels per day; and non-upgraded bitumen averaged 1,019,810 barrels per day, with eastern Canada production averaging 235,566 barrels per day, for a total production of 3,510,643 barrels per day. In addition, Canada imported on average a little over 656,000 barrels per day. We exported 97% of that to the United States at 2,571,000 barrels per day.
From a western Canada perspective, since the future production forecasts are higher than domestic demand, the single biggest challenge for the industry is characterized by the term “market access”. In its simplest form, market access relates to infrastructure, either pipeline or rail, that would allow conventional crude, crude/bitumen, or refined products to achieve unhindered access to refineries and markets either in North America or globally.
Achieving market access refers to the timely development of these infrastructures, such that the flow of fluids does not become capacity limited. Lack of market access refers to the opposite situation, where flows on pipelines or rails are apportioned or curtailed, leading to a decline in the local market price or, to express it another way, an increase in the differential dollars per barrel between the Canadian benchmark crude of Western Canadian Select and the U.S. benchmark of West Texas Intermediate, or WTI.
As pipelines and rails are added to the transportation infrastructure, the narrower the differential becomes. As pipelines and rail are not added, the wider the differential becomes. Both of these situations have played out over the past two years, with the historical average range being from about minus $15 to a high of minus $37, reached in December 2013.
Pipeline differentials have affected the relationship between WTI at Cushing, Oklahoma, and the global benchmark of Brent crude. Taking both into account, the WCS/WTI differential and the WTI/Brent differential, the deepest discount for Western Canada heavy crude and the global market was reached in December 2013 at $50.70. That's minus $50.70. Effectively, Western Canada heavy barrels are being discounted at 54% to world markets.
Over the next four years, with no new pipelines under construction with the exception of the enhancements to the Enbridge Alberta Clipper pipeline, rail is the only method of transporting incremental volumes of crude and bitumen to North American markets. The Canadian rail systems linking Alberta and Saskatchewan to U.S. markets are currently capable of loading around 150,000 barrels per day. An additional 750,000 barrels per day will be under construction and coming on stream in the 2015 to 2017 timeframe.
CERI is forecasting that production of conventional light and heavy crudes will grow to 1.4 million barrels per day by 2018, and oil sands, both upgraded and non-upgraded, will grow to three million barrels per day by 2018. Between today and 2018, the export volume levels and the transport capacity will be one and the same, leading to the suggestion that the WCS/WTI differential will continue to show its seasonal volatility. The WTI-to-Brent differential will see some easing as new pipelines come on stream to handle the constriction between Cushing, Oklahoma, and the gulf coast refineries.
After accounting for the diluent required to transport the heavy crude by pipe and the addition of some Bakken U.S. crude to that pipeline system, the projection for crude and bitumen exports out of western Canada in 2018 will reach 4.5 million barrels per day.
The export projection post-2018 will totally depend on the level of pipeline development or rail development, with a maximum potential of five million barrels per day by 2020 and 7.5 million barrels by 2030. Keystone XL, Trans Mountain expansion, energy east, and northern gateway are required to reach these levels.
On facts about the gas industry in 2013, on a marketable gas basis, Alberta averaged 9,537 million cubic feet per day, British Columbia 3,647 million cubic feet per day—