Read this opinion piece by former ICBC CEO Robyn Allan on TheTyee.ca bursting the "bitumen bubble" argument coming from Tar Sands promoters to push new pipeline infrastructure. (Jan. 29, 2013)
Cenovus CEO Brian Ferguson, speaking at a Whistler investor's forum Jan. 24, 2012, claimed the double discount in crude prices from a lack of pipeline capacity is a "subsidization to the United States consumer by the Canadian economy" which he calculated is "$1,200 per Canadian."
The message he's sending? If each one of us wants to keep that $1,200 a year instead of providing income support for Americans, then get on the pipeline band wagon and become like him -- "in favour of all pipelines, going anywhere."
Ferguson's message is a variation of a theme we've been hearing from big oil for a couple of years -- echoed by the Canadian and Alberta governments. They get away with this tall tale because most of us do not understand how oil is traded and crude prices are set. Nor do we realize that the majority of crude oil produced belongs to integrated operations that own refineries too -- so if they lose on the one hand, they make it up on the other.
The narrative goes like this: resistance to oil pipelines like Keystone XL, Northern Gateway and Trans Mountain's twinning means an ever increasing supply glut in the U.S. Midwest, forcing the price of Western Canadian crude oil downwards as compared to the North American crude oil benchmark West Texas Intermediate -- WTI.
WTI is trading at about $96 US a barrel while key oil sands blended crude called Western Canadian Select -- or WCS -- is currently selling at a deep discount to WTI at $31 US per barrel. If Canadian oil could find its way to new markets it would command higher prices and improve producer revenues. But the problem, according to pipeline advocates, doesn't stop there...
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Things have changed. Brent priced oil is selling at around $113 US a barrel -- a $17 US per barrel premium to WTI. When the oil sector talks about the double discount, this is what they are referring to -- WTI deeply discounted from Brent and WCS priced against WTI, deeply discounted again. They run the numbers as if western Canadian crude will command world prices once it finds its way onto new pipelines and into new markets -- even though they know this is false.
Oil sands crude takes more energy, and therefore costs more to process into finished products like gasoline, jet fuel and diesel. Even before there was any evidence of a glut in the U.S. due in part to the expansion of U.S. production from the Bakken, there was a natural discount for WCS related to product quality. Between 2005 and 2010 the discount of WCS to WTI ran at an average of $18 US per barrel.
Enbridge CEO Al Monaco told the Toronto Board of Trade last June that pipeline delays on projects like Northern Gateway is costing billions. He said our oil is "selling for $20 to$30 off world prices. If you do the math, that translates to lost value of some $60 million a day. A massive loss of value for Canadians." To get this figure, Monaco took Western Canada's crude oil exports by volume and pretended it captured Brent prices. The discount related to quality was ignored.
CIBC last March estimated the loss at $50 million a day or $18 billion a year. "We consider the current discounting of WTI vs Brent, and the more recent discounting of Canadian crudes vs. WTI (i.e., double discounted vs. global crudes) as a major issue."
Cenovus' Ferguson, in his talk to investors last week, pointed to the CIBC report and claimed "that number, I think is about double that given today's differentials" and raised the CIBC estimate to $36 billion a year.
But if you look at the differentials last March and compare them to today, they are almost the same. Last March Brent traded at about $124 US a barrel, WTI at $106 US and WCS at a discount to WTI of $31 US -- total double discount of $49 US. Awfully close to the current $48 US double discount Ferguson laments.
Not only did Ferguson double the hit, he took the tragedy to new extremes by suggesting this lost opportunity is tantamount to each Canadian handing over a cash subsidy to U.S. consumers.
How is it he could simply double the total, call it $36 billion, divide it by the population of Canada, and claim its costing us each $1,200? Great headlines, but not remotely true.
Read more: http://thetyee.ca/Opinion/2013/01/29/Canadian-Oil-Producers/