Canadian Oil Sands and its impact on the United States

New York Energy Forum

New York CityMay 1 2007

Eswaran (Esa) RamasamyExecutive Editor, Global Oil MarketsPlatts, Calgary

2

Agenda

• Introduction to Platts

• Introduction to “oil sands”

• Canadian crude exports to the US

• Impact of Canadian crude on US crude oil markets

• Q & A

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Introduction to Platts

The McGraw-Hill Companies

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Platts’ Scope

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Oil Sands

Oil Sands mined & in-situ methods used to separate oil

from sand

Crude OilPractically all of the crude derived from oil

sands is heavy crude with an average API of 20-22 or what is commonly known as

bitumen

Synthetic crudeUpgraded bitumen through a coking process that

“lightens” the oil

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Oil Sands . . .

Oil Sands – refers to the mixture of sand and oil – found largely in northern Alberta

Crude oil accounts for about 18% of oil sands

composition

It takes about two mt of oil sands to produce 1.2 barrels of bitumen

And 1.2 bitumen to produce 1 barrel of synthetic crude

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Oil Sands . . .

$12.87

$10.69

$23.56

$6.99$9.58

0%

20%

40%

60%

80%

100%

Production costs

Royalty

Nat. gas

SSB

Upgrading

Bitumen

Source: Canadian Oil Sands Trust

Cost of SSB production: $40.13/bbl

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Canada & Oil Sands

Canada has bitumen reserves of about 175 billion barrels – second only to Saudi Arabia – CAPP

Canada offers the most secure source of supply of crude oil to the United States

Canada is the most stable crude producer in the world

Canada is the largest supplier of energy to the US

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Canada & Oil Sands . . .

• CAPP estimates bitumen production to rise to 2.9-3.5 million b/d by 2015

• By 2015 – it is estimated that Alberta would have slightly more than 3.0 million b/d of upgrading capacity or the ability to produce 2.5 million b/d of synthetic crude

• AEUB believes bitumen production from Alberta would reach 4.66 million b/d in 2025 from the current estimate of 1.2 million b/d

• Most of these output would most likely end up in the US

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Canada & Oil Sands . . .

1807 18281970

2072 2138 21812303

0

500

1000

1500

2000

2500

2000 2001 2002 2003 2004 2005 2006

Source: EIA

1.2% 7.8% 5.2% 3.2% 2.0% 5.6%

Total Canadian crude oil exports to the US (‘000 b/d)

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Canada & Oil Sands . . .

Source: National Energy Board

896 980 1020 1080 1151

0

200

400

600

800

1000

1200

2002 2003 2004 2005 2006

Heavy Crude Exports ('000 b/d)

9.4% 4.1% 5.9% 6.6%

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Canada & Oil Sands . . .

Heavy Crude Exports by PADD ('000 b/d)

0

100

200

300

400

500

600

700

800

900

PADD 1 PADD 2 PADD 3 PADD 4 PADD 5 Others

Source: National Energy Board

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Canada & Oil Sands

• Total Canadian crude production is expected to reach 4.5-4.8 million b/d by 2015

• About 20% of this output would be convention crudes – Hibernia, Terra Nova and White Rose from Atlantic Canada

• Bitumen production to be 3.5-3.8 million b/d

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Canada & Oil Sands – the Future

• More pipelines – movement of more Western Canada crudes into PADD 1, 2, 4 & 5

• Expansion & reversal of existing pipelines to move Western Canadian crudes into the Gulf Coast

• Upgrading of refiners in Gulf Coast to run Canadian heavy

• Narrow WTI-Dubai spread – Is WTI weak or is Dubai relatively stronger

• Is WTI reflecting economics of Cushing area or that of the US ?

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More pipelines . . .

• Enbridge expanding Spearhead line from Chicago to Cushing Current capacity at 125,000 b/d Expansion to 190,000 b/d – early 2009 Further expansion to 260,000 b/d – 2010

• ExxonMobil’s 66,000 b/d Pegasus pipeline from Patoka to Nederland (reversal complete in April 2006)

• TransCanada’s Keystone project 450,000 b/d from Hardisty to Wood River to Cushing in

2009

• BP’s proposed reversal of its 100,000 b/d Cushing to Chicago crude line – mid 2009 with possibility of expanding to 200,000 b/d

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More pipelines . . .

• Kinder Morgan expanding Trans Mountain line from current 260,000 b/d to 300,000 b/d in 2008 and 400,000 b/d in 2009.

• Enbridge’s move to expand/build new 300,000 b/d line from Chicago to Philadelphia, Baltimore or New Jersey.

• Teppco’s 350,000 b/d jv Seaway pipeline linked to Enbridge’s Spearhead.

• Enbridge’s plan to build a 400,000 b/d Alberta-Texas line.

• Altex Energy’s 250,000 b/d Alberta-Gulf Coast line – due in 2011-2012.

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Pipelines . . .

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Canadian exports – Impact on US

• Is Canada hooked on PADD II for outlets ?

• Evidence shows though Canadian exports are targeting the US – efforts are underway to develop markets within Canada – ie, in PADD II and PADD III (Gulf Coast)

• As more modifications are done refiners in PADD IV – demand for Canadian crudes would rise from refiners in Colorado, Montana and Wyoming

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Canada exports & US . . .

• What does all these Canadian exports have on WTI Startup of Spearhead in March 2006 did have bearish impact

on WTI Startup of Pegasus line in April 2006 also did have a bearish

impact on WTI

Cash WTI ($/bbl)

45.00

55.00

65.00

75.00

85.00

1/3

/20

06

2/3

/20

06

3/3

/20

06

4/3

/20

06

5/3

/20

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6/3

/20

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7/3

/20

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8/3

/20

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9/3

/20

06

10

/3/2

00

6

11

/3/2

00

6

12

/3/2

00

6

1/3

/20

07

2/3

/20

07

3/3

/20

07

Spearhead

Pegasus

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Canada exports & the US

WTI's Contango ($/bbl)

-7.0

-6.0

-5.0

-4.0

-3.0

-2.0

-1.0

0.0

2/1/

06

3/1/

06

4/1/

06

5/1/

06

6/1/

06

7/1/

06

8/1/

06

9/1/

06

10/1

/06

11/1

/06

12/1

/06

1/1/

07

2/1/

07

3/1/

07

4/1/

07

Spearhead

Pegasus

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WTI – benchmark status questioned

• In March, value of Brent rose well above WTI

• Leading many players to question if WTI truly represents US crude supply demand or that of Cushing alone.

• Outage of McKee refinery in February cause of WTI going into contango – while WTI-Brent spread inverts and WTI-Dubai spread narrows sharply.

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WTI - benchmark status questioned

Brent-WTI spread

-2-1.5

-1-0.5

00.5

11.5

22.5

33.5

44.5

55.5

6

McKee outage

Whiting problem

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WTI . . .

• McKee outage trapped WTI within in Cushing

• Ability of WTI to move north via other pipelines was also limited because of Whiting refinery problems in late March added to WTI’s contango

• Incoming Canadian WCS & Syncrude added to the problem

• Leading many to question WTI’s ability to reflect US crude demand/supply balance as opposed to Cushing’s supply/demand balance

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WTI . . .

• What is interesting of the current WTI-Brent inversion – has happened in the past – but now it has stretched itself all the way to H1 2008

• Benchmarks have in past been inverted – when Dubai was higher than Brent – but this was short term phenomenon

• In the case WTI – some think the fundamentals have changed and that there is no reason why WTI must be higher than Brent – other than for linear reasons

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Cushing crude oil storage capacity

0.00

5.00

10.00

15.00

20.00

25.00

30.00

35.00

40.00

45.00

Enbridge BP Plains SemGroup TEPPCO Total

2007 end-2007

Source: Platts

2007 end-2007Enbridge 12.80 16.70BP 10.00 10.00Plains 7.40 10.60SemG 4.30 4.30TEPPCO 1.95 1.95Total 36.45 43.55All figures in million barrels

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WTI-Brent swaps spread . . .

-3-2

-10

1

May June Q32007

Q42007

Q12008

2008

1-Feb 1-Mar 1-Apr 25-Apr

`

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WTI . . .

• While WTI was being inverted to Brent – the WTI-Dubai spread was also crunching in sharply

• On May 12 – at the close of the Asian day – the May NYMEX WTI-Dubai swaps spread narrowed to an all time low of +$0.87/bbl

• What the narrow WTI-Dubai spread implied was that Latin sour crudes would now move to Asia – also exerts bullishness on US sour crudes