Canadian Energy Research Institute - CERI Bbl Competition_CCQTA-COQ… · • Canadian heavy crude...

“Canada’s Competitive Barrel: Can Canadian Heavy Barrels Compete in the

US Gulf?”

Canadian Energy Research Institute

Dinara MillingtonCanadian Energy Research Institute

CCQTA-COQA Joint MeetingJune 7-10, 2016

Relevant • Independent • Objectivewww.ceri.ca

Relevant • Independent • Objectivewww.ceri.ca2

Canadian Energy Research InstituteFounded in 1975, the Canadian Energy Research Institute (CERI) is anindependent, non-profit research institute specializing in the analysis of energyeconomics and related environmental policy issues in the energy production,transportation, and consumption sectors.

Our mission is to provide relevant, independent, and objective economicresearch of energy and environmental issues to benefit business, government,academia and the public.

Our core supporters include Natural Resources Canada, Alberta Energy, andCAPP, Chemistry Industry Association of Canada (CIAC), Alberta’s IndustrialHeartland Association (AIHA), and the University of Calgary. In-kind support isalso provided by the Alberta Energy Regulator (AER) and Petroleum ServicesAssociation of Canada (PSAC).

All of CERI’s research is placed in the public domain and can be accessed viaour website at www.ceri.ca .

http://www.ceri.ca/


Agenda

• The “Why”• Canadian Exports to the US• Transportation Network• US Gulf Imports• Potential Netbacks for Canadian WCS

In ServiceProposed Project

The “Why”

Source: ARC Financial Corp.


Canadian Heavy Crude Exports to the US (2014-2015)

-

200

400

600

800

1,000

1,200

1,400

1,600

1,800

PADD I PADD II PADD III PADD IV PADD V

Thou

sand

bar

rels

per

day

Conventional Heavy

Synthetic

Bitumen and Blended Bitumen

East Coast Midwest US Gulf Coast

Rocky Mountain

West Coast

Source: National Energy Board


Pipeline Network

2,000

3,000

4,000

5,000

6,000

7,000

2007 2010 2013 2016 2019 2022 2025 2028 2031 2034Th

ousa

nd b

arre

ls pe

r day

Existing Export CapacityEnbridge Alberta Clipper ExpansionEnbridge Line 3 RestoredKinder Morgan TMX ExpansionEnbridge Northern Gateway

Source: Canadian Energy Pipeline Association

Existing and Future Western Canadian Pipeline Export Capacity

Source: Canadian Association of Petroleum Producers


Rail Network

0

100

200

300

400

500

600

700

800

900

1,000

2007 2010 2013 2016 2019 2022 2025 2028 2031 2034

Thou

sand

bar

rels

per d

ay

Future Rail Capacity Existing Rail Capacity

Source: Canadian Association of Petroleum Producers

Existing and Future Western Canadian Rail Export Capacity


US Gulf Coast Refining Capacity

Source: US Energy Information Agency


Crude Prices

Source: Argus Media


Crude Oil Quality

Source: BP, EIA, Genesis Capital, Oil &Gas Journal, Pemex, Statoil

Condensate BlendSuncor Synthetic A

Syncrude Synthertic

Western Candian SelectCold Lake Blend

Peace River Heavy

Wabasca Heavy

Albian Hvy. Syn.

Hibernia Blend

Monterey

Kern River

Mars

West Texas Intermediate

West Texas Sour

Alaska North Slope

Mexico - Maya

Venezuela -Merey

Venezuela - BCF-17Ecuador - Napo

Brazil - Marlim

Colombia - Castilla Blend

Brazil - PolvoColombia - Rubiales

Brent

Forties Blend

Algerian CondensateNigeria - Bonny Light

Kuwait - Kuwait

UAE - Dubai

Saudi Arabia - Arab Light

Iraq - Basra Light

Malaysia - TapisSumatra - Duri

0.00%

0.50%

1.00%

1.50%

2.00%

2.50%

3.00%

3.50%

4.00%

4.50%

5.00%

5.50%

0 5 10 15 20 25 30 35 40 45 50 55 60 65 70 75 80

Sulfu

r Con

tent

wt.

% (S

wee

t ->

Sour

)

API Gravity (Heavy -> Light)

Heavy Vs. Light

Sweet Vs. Sour

Canadian Crudes

US Crudes


US Gulf Coast Heavy Crude Imports

0

500

1,000

1,500

2,000

2,500

3,000

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

Thou

sand

bar

rels

per d

ay

Canada Ecuador BrazilColombia Venezuela Mexico

Source: US Energy Information Agency, 2015


Canadian Net Available Heavy Crude Exports

-

500

1,000

1,500

2,000

2,500

3,000

3,500

4,000

4,500

5,000

2007 2009 2011 2013 2015 2017 2019 2021 2023 2025 2027 2029 2031 2033 2035

Thou

sand

bar

rels

per d

ay

SK Heavy Conventional Production (CERI, 2014)

AB Conventional Heavy (CAPP, 2015)

SCO Production (CERI, 2015)

Crude Bitumen Production (CERI, 2015)

Net available heavy crude oil exports (CERI, 2015)

Source: CERI, “Heavy barrel competition in the US Gulf Coast: Can Canadian producers compete?”, 2016


Potential Heavy Crude Exports to the US Gulf Coast

-

200

400

600

800

1,000

1,200

1,400

1,600

2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 2031 2032 2033 2034 2035

Thou

sand

bar

rels

per d

ay

Pipeline Capacity to the Gulf Coast Rail Capacity to the US Gulf CoastConsidering 50% capacity through EE & TMX Considering 75% capacity through EE & TMXConsidering 50% capacity through EE,TMX & NG Considering 75% capacity through EE,TMX & NGNo major coast export pipeline available

Source: CERI, “Heavy barrel competition in the US Gulf Coast: Can Canadian producers compete?”, 2016


Potential Netbacks for Canadian Heavy Barrel Producers

$30.43

$45.95

$8.79 $12.03

$15.50 $11.73 $12.50 $15.00

$13.02 $4.23 $0.99 $1.29 $0.52

$2.50

$-

$5.00

$10.00

$15.00

$20.00

$25.00

$30.00

$35.00

$40.00

$45.00

$50.00

All values are 2015 average US$Source: CERI, “Heavy barrel competition in the US Gulf Coast: Can Canadian producers compete?”, 2016


Pipeline toll Hardisty to Texas Gulf Coast (10-yearcommitted toll) US$/bbl

$7.79

Pipeline load terminal fee US$/bbl $1.00Total Pipeline Transportation Cost – Hardisty toHouston / bbl

$8.79

Western Canadian Select @ Hardisty $30.43Median USGC Heavy Sour Crude landed $45.95USGC Heavy Sour Crude - Dilbit Quality Adjustment $2.5

Estimated WCS Price Uplift @USGC $13.02

Netback for Canadian producers at the USGC $4.23

Netbacks for WCS Transported by Existing Pipeline (Committed Tolls) from Hardisty, AB to the US Gulf

Coast

Pipeline fee Hardisty to Texas Gulf Coast(uncommitted toll) US$/bbl

$11.03

Pipeline load terminal fee US$/bbl $1.00Total Pipeline Transportation Cost – Hardisty toHouston / bbl (uncommitted tolls)

$12.03



Netback for Canadian producers at the USGC $0.99

Netbacks for WCS Transported by Existing Pipeline (Uncommitted Tolls) from Hardisty, AB to the US Gulf

Coast

Netbacks for WCS – Existing Pipeline

All values are 2015 average US$Source: CERI, 2016


Netbacks for WCS Transported by Rail fromHardisty, AB to the US Gulf Coast

Netbacks for WCS – Existing Rail

Rail Tank Car (bbl) 600Rail Freight Hardisty to Texas Gulf Coast (Heavy Crude) US$/bbl UnitTrain

$12.00

Rail Tank Car Lease / bbl ($600/month, 2 turns) $0.50Rail Car Load and Unload Terminal Fee / bbl ($1.50 each) $3.00

Total Rail Transportation Cost – Hardisty to Houston / bbl $15.50



Netback for Canadian producers at the USGC $(-2.48)

All values are 2015 average US$Source: CERI, 2016


Conclusions

• Canadian heavy crude oil production is expected to grow from 2.6MMbpd in 2015 to 4.7 MMbpd in 2035, more than a 2 MMbpdincrease over the next twenty years.

• Canadian domestic demand for heavy crude oil is expected toincrease by approximately 50% and reach over 800,000 bpd by2035.

• Net heavy Canadian available exports are expected to grow tovolumes larger than 3.5 MMbpd over the next decade.

• Heavy crude imports from Mexico and Venezuela have decreasedby over 1 MMbpd over the last 10 years.

• If Canadian heavies could displace most of the Mexican andVenezuelan imports, the opportunity for bitumen blends and heavyoil would be about 1.5 MMbpd.


Conclusions

• If exports are to increase to the Gulf to displace other exporters,additional pipeline capacity needs be developed.

• Under current market conditions, rail access to the USGC pricesCanadian producers out of the market.

• By allocating heavy production to other markets such as Asia andEurope, Canadian producers are able to reduce their overlanddependence on the US market, reduce their supply to that market,and overcome pipeline constraint issues on the US Gulf Coast.

• As Western Canadian crude oil production continues to grow, theleverage of these resources for economic benefits to the nation willdepend on the ability to connect this growing supply with demand.


Thank you!

www.ceri.ca

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