Keeping Our Options Open: Markets for Canadian Crude and the Pipeline Dilemma Trisha Curtis, Research Analyst Energy Policy Research Foundation, Inc. (EPRINC) CERI Oil Conference 2012 April 23 rd, 2012 Energy Policy Research Foundation, Inc. 1031 31st St, NW Washington, DC 20007 202.944.3339 www.eprinc.org 1
EPRINC stands for Energy Policy Research Foundation, Inc. Non-profit research group that does economic and policy analysis on the petroleum industry Founded in 1944 in New York. Established as a group to explain markets and fundamentals Previously the Petroleum Industry Research Foundation, Inc (PIRINC) until we moved to Washington in 2007 Grew largely into a downstream organization, but have since moved extensively into upstream and midstream Extensive work on ethanol, refining, U.S. shale plays, Keystone XL www.eprinc.org -- check out our research, its free Who is EPRINC? Energy Policy Research Foundation, Inc. 1031 31st St, NW Washington, DC 20007 202.944.3339 www.eprinc.org 2
Main Discussion Points 1) In the past ten years Canadian imports into the US have steadily rose along with a surge in US production 2) Not all of the natural markets for Canadian crude in the U.S. have been tapped as planned and now there are multiple existing bottlenecks in the US, putting pricing pressure on Bakken and Canadian crude 3) Canadian crude, along with US stranded crude, must now search for alternative routes, markets, and transportation in order to capture a higher value 4) US crude is now moving by rail will more Canadian crude begin to seek this option? Energy Policy Research Foundation, Inc. 1031 31st St, NW Washington, DC 20007 202.944.3339 www.eprinc.org 3
Markets for Canadian Crude The current markets for Canadian crude are the Rockies (PADD 4) and the Midwest (PADD 2) The potential exists in Asia and the Gulf Coast substantially knocking out heavy Mexican and Venezuelan imports in the US Gulf Coast But due to regulatory and environmental hurdles, PADD III access has been postponed and thereby tightness has been created and too much light sweet in the market, no need for SCO in the U.S. Energy Policy Research Foundation, Inc. 1031 31st St, NW Washington, DC 20007 202.944.3339 www.eprinc.org 4
Canadian Crude Flows Source: Canadian Pipeline Transportation System, NEB, July 2009 Energy Policy Research Foundation, Inc. 1031 31st St, NW Washington, DC 20007 202.944.3339 www.eprinc.org 5
So what s the big deal? It this a renaissance or something? Energy Policy Research Foundation, Inc. 1031 31st St, NW Washington, DC 20007 202.944.3339 www.eprinc.org 6
NPC Findings Energy Policy Research Foundation, Inc. 1031 31st St, NW Washington, DC 20007 202.944.3339 www.eprinc.org 7
Some Recent Forecasts projected 3,100 Mb/d increase (36%) in U.S. and Canadian oil production and.900 Mb/d increase in Canadian oil exports to the U.S. between 2011 and 2016 (BENTEK) U.S. oil imports (excluding imports from Canada) are projected to drop 41%, or 2,800 Mb/d, to an average of 3,900 Mb/d in 2016. (BENTEK) We re now forecasting that U.S. oil production (excluding NGLs) will grow from 5.6 MMBpd in 2010 to a whopping 9.1 MMBpd in 2015. Including natural gas liquids, total U.S. petroleum liquid production grows 60% from 7.7 MMBpd in 2010 to 12.2 MMBpd in 2015. (RAYMOND JAMES) Energy Policy Research Foundation, Inc. 1031 31st St, NW Washington, DC 20007 202.944.3339 www.eprinc.org 8
1/1/1995 10/1/1995 7/1/1996 4/1/1997 1/1/1998 10/1/1998 7/1/1999 4/1/2000 1/1/2001 10/1/2001 7/1/2002 4/1/2003 1/1/2004 10/1/2004 7/1/2005 4/1/2006 1/1/2007 10/1/2007 7/1/2008 4/1/2009 1/1/2010 10/1/2010 7/1/2011 4/1/2012 1/1/2013 10/1/2013 7/1/2014 4/1/2015 1/1/2016 10/1/2016 7/1/2017 million barrels per day EPRINC Unconventionals Production and Forecast 5 4.5 4 3.5 3 Eagle Ford Liquid Daily Average Bakken/Three Forks Liquid Daily Average 2.5 2 1.5 1 Niobrara/Codell Liquids Daily Average Permian Basin Liquids Daily Average 0.5 0 Source: HDPI data, EPRINC estimates Energy Policy Research Foundation, Inc. 1031 31st St, NW Washington, DC 20007 202.944.3339 www.eprinc.org
Total Canadian Oil Production (NEB Reference Case) Additional 1 mbd in three years = tightness Source: Canada s Energy Future: Energy Supply and Demand Projections to 2035. Nov 2011. NEB Maybe some upside in tight oil Energy Policy Research Foundation, Inc. 1031 31st St, NW Washington, DC 20007 202.944.3339 www.eprinc.org 10
Canadian Consumption to Remain Flat.Every incremental barrel must be exported Source: EIA Energy Policy Research Foundation, Inc. 1031 31st St, NW Washington, DC 20007 202.944.3339 www.eprinc.org 11
U.S. Production Increases Additional 2-3 mbd by 2016 = tightness 2016 Source: EIA and EPRINC estimates from NDPA and HPDI Energy Policy Research Foundation, Inc. 1031 31st St, NW Washington, DC 20007 202.944.3339 www.eprinc.org 12
U.S. Rig Count Source: HPDI April 20 th, 2012 Energy Policy Research Foundation, Inc. 1031 31st St, NW Washington, DC 20007 202.944.3339 www.eprinc.org 13
U.S. Shale/Tight Oil and Conventional Plays Source: EPRINC, not to scale Energy Policy Research Foundation, Inc. 1031 31st St, NW Washington, DC 20007 202.944.3339 www.eprinc.org 14
U.S. and North Dakota Rig Count 1,800 1,600 1,400 1,200 1,000 800 600 Oil Gas North Dakota 400 200 0 Source: Baker Hughes Oct 4 2011. All but 50 rigs nationwide are onshore. Energy Policy Research Foundation, Inc. 1031 31st St, NW Washington, DC 20007 202.944.3339 www.eprinc.org 15
Jan-07 Mar-07 May-07 Jul-07 Sep-07 Nov-07 Jan-08 Mar-08 May-08 Jul-08 Sep-08 Nov-08 Jan-09 Mar-09 May-09 Jul-09 Sep-09 Nov-09 Jan-10 Mar-10 May-10 Jul-10 Sep-10 Nov-10 Jan-11 Mar-11 May-11 Jul-11 Sep-11 Nov-11 Jan-12 Barrels Per Day Williston Basin Production 600,000 500,000 400,000 North Dakota Eastern Montana South Dakota 300,000 TOTAL 200,000 100,000 0 North Dakota accounts for almost 10% of US Production Almost all new production is from the Bakken/Three Forks Source: NDIC Energy Policy Research Foundation, Inc. 1031 31st St, NW Washington, DC 20007 202.944.3339 www.eprinc.org 16
1/1/1985 11/1/1985 9/1/1986 7/1/1987 5/1/1988 3/1/1989 1/1/1990 11/1/1990 9/1/1991 7/1/1992 5/1/1993 3/1/1994 1/1/1995 11/1/1995 9/1/1996 7/1/1997 5/1/1998 3/1/1999 1/1/2000 11/1/2000 9/1/2001 7/1/2002 5/1/2003 3/1/2004 1/1/2005 11/1/2005 9/1/2006 7/1/2007 5/1/2008 3/1/2009 1/1/2010 11/1/2010 9/1/2011 Barrels Per Day mcf/day Eagle Ford Production 400000 2000000 350000 300000 250000 1800000 1600000 1400000 1200000 200000 1000000 150000 100000 50000 800000 600000 400000 200000 GAS LIQ 0 0 Source: HPDI April 20, 2012 Energy Policy Research Foundation, Inc. 1031 31st St, NW Washington, DC 20007 202.944.3339 www.eprinc.org 17
What s happening to prices? Source: AFPM Map,; Mar 1 2012 Bloomberg Brent and WTI Prices; Flint Hills and estimates, Canadian assumptions Energy Policy Research Foundation, Inc. 1031 31st St, NW Washington, DC 20007 202.944.3339 www.eprinc.org 18
Brent, WTI, and Bakken Markets Source: AFPM Map,; April 20, 2012 Bloomberg Brent and WTI Prices; Flint Hills and estimates, Canadian assumptions Energy Policy Research Foundation, Inc. 1031 31st St, NW Washington, DC 20007 202.944.3339 www.eprinc.org 19
Bakken Prices at Clearbrook Source: Bloomberg, April 20th, 2012 Energy Policy Research Foundation, Inc. 1031 31st St, NW Washington, DC 20007 202.944.3339 www.eprinc.org 20
$/Barrel North Dakota Discounts 140 120 100 80 60 40 20 Canadian discounts even steeper North Dakota Light Sweet WTI Spot Brent Spot 0 Source: Flint Hills, EIA, and estimates Energy Policy Research Foundation, Inc. 1031 31st St, NW Washington, DC 20007 202.944.3339 www.eprinc.org 21
Why? Source: AFPM Map,; Mar 1 2012 Bloomberg Brent and WTI Prices; Flint Hills and estimates, Canadian assumptions Energy Policy Research Foundation, Inc. 1031 31st St, NW Washington, DC 20007 202.944.3339 www.eprinc.org 22
Choke Points Source: Savage background map of pipelines and refineries, Presentation Bakken Product Markets and Take-Away Denver Jan 31-Feb 1 2012 with EPRINC analytical Additions Energy Policy Research Foundation, Inc. 1031 31st St, NW Washington, DC 20007 202.944.3339 www.eprinc.org 23
U.S. Imports of Canadian Crude Source: EIA Energy Policy Research Foundation, Inc. 1031 31st St, NW Washington, DC 20007 202.944.3339 www.eprinc.org 24
Where heavy (blended bitumen) needs to go Total Coking Capacity vs. Atmospheric Crude Distillation Capacity by PADD Source: AFPM map, EIA data for graph Energy Policy Research Foundation, Inc. 1031 31st St, NW Washington, DC 20007 202.944.3339 www.eprinc.org 25
Canadian Crude Imports into PADD II 1800 1600 1400 1200 Midwest (PADD 2) Imports by PADD of Processing of Crude Oil 1000 800 Midwest (PADD 2) Imports by PADD of Processing from Canada of Crude Oil 600 400 200 0 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 Source: EIA Energy Policy Research Foundation, Inc. 1031 31st St, NW Washington, DC 20007 202.944.3339 www.eprinc.org 26
Only Imports to the Rockies are Canadian 300 250 200 Rocky Mountain (PADD 4) Imports by PADD of Processing from Canada of Crude Oil 150 100 Rocky Mountain (PADD 4) Imports by PADD of Processing of Crude Oil 50 0 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 Source: EIA Energy Policy Research Foundation, Inc. 1031 31st St, NW Washington, DC 20007 202.944.3339 www.eprinc.org 27
1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 Canadian Crude Imports into PADD III Almost Zero 7000 6000 5000 Gulf Coast (PADD 3) Imports by PADD of Processing from Canada of Crude Oil 4000 3000 Gulf Coast (PADD 3) Imports by PADD of Processing of Crude Oil 2000 1000 0 Source: EIA Energy Policy Research Foundation, Inc. 1031 31st St, NW Washington, DC 20007 202.944.3339 www.eprinc.org 28
Canadian Crude Imports into PADD I 1800 1600 1400 1200 1000 800 600 East Coast (PADD 1) Imports by PADD of Processing of Crude Oil East Coast (PADD 1) Imports by PADD of Processing from Canada of Crude Oil 400 200 0 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 Source: EIA Energy Policy Research Foundation, Inc. 1031 31st St, NW Washington, DC 20007 202.944.3339 www.eprinc.org 29
Canadian Crude Imports into PADD V 1400 1200 1000 West Coast (PADD 5) Imports by PADD of Processing from Canada of Crude Oil 800 600 West Coast (PADD 5) Imports by PADD of Processing of Crude Oil 400 200 0 Source: EIA 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 Energy Policy Research Foundation, Inc. 1031 31st St, NW Washington, DC 20007 202.944.3339 www.eprinc.org 30
Source: Canadian Energy Pipeline Association with EPRINC additions Canadian Pipeline Export Options Kinder Morgan s Transmountain line off BC coast- currently 300,000 b/d capacityrecent announcements to expand up to 800,000 b/d (early 2017) Platte line to Wood River 280,000 b/d-full Enbridge mainline system currently transporting over 1.5 mbd with potential capacity around 2.5 mbd TransCanada s Keystone 581,000 b/d-full Energy Policy Research Foundation, Inc. 1031 31st St, NW Washington, DC 20007 202.944.3339 www.eprinc.org 31
PADD II will be importing more HEAVY.pushing out light Source: Enbridge presentation April 2012, Denver, Platts Rockies Oil and Gas Conference Energy Policy Research Foundation, Inc. 1031 31st St, NW Washington, DC 20007 202.944.3339 www.eprinc.org 32
Canadian Imports and Potential Markets Energy Policy Research Foundation, Inc. 1031 31st St, NW Washington, DC 20007 202.944.3339 www.eprinc.org 33
U.S. Imports by API Gravity Source: EIA Energy Policy Research Foundation, Inc. 1031 31st St, NW Washington, DC 20007 202.944.3339 www.eprinc.org 34
Your options in the short to medium term Energy Policy Research Foundation, Inc. 1031 31st St, NW Washington, DC 20007 202.944.3339 www.eprinc.org 35
Shale Oil Plays and Existing Oil Pipeline Network Source: Savage, Presentation Bakken Product Markets and Take-Away Denver Jan 31-Feb 1 2012 Energy Policy Research Foundation, Inc. 1031 31st St, NW Washington, DC 20007 202.944.3339 www.eprinc.org 36
North American Rail Map New markets Diversification Neat Barrels Nimble- Quickly adjustable Source: Watco Companies LLC, Presentation Bakken Product Markets and Take-Away Denver Jan 31-Feb 1 2012 Energy Policy Research Foundation, Inc. 1031 31st St, NW Washington, DC 20007 202.944.3339 www.eprinc.org 37
Number of Railcars Average weekly U.S. railcar loads of crude oil and petroleum products 9000 8000 7000 6000 5000 4000 3000 2008 2009 2010 2011 2000 1000 0 Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Source: U.S. Energy Information Administration, based on the Association of American Railroads. Note: Data are weekly average originations for each month, are not seasonally adjusted, and exclude U.S. operations of Canadian National Railways and Canadian Pacific Railway; one carload holds 30,000 gallons. Energy Policy Research Foundation, Inc. 1031 31st St, NW Washington, DC 20007 202.944.3339 www.eprinc.org 38
North Dakota Crude Oil Transport October Estimates December Estimates January Estimates Source: North Dakota Pipeline Authority Energy Policy Research Foundation, Inc. 1031 31st St, NW Washington, DC 20007 202.944.3339 www.eprinc.org 39
Barrels Per Day ND Pipeline and Rail Take-Away Capacity 1800000 1600000 1400000 1200000 1000000 800000 Rail Only Total Pipeline Only 600000 400000 200000 0 2007 2008 2009 2010 2011 2012 2013* 2014* 2015* Source: North Dakota Pipeline Authority, Included Planned Projects Energy Policy Research Foundation, Inc. 1031 31st St, NW Washington, DC 20007 202.944.3339 www.eprinc.org 40
Value of Rail vs. Pipeline Volume flexibility (ups and downs in production) access new and high value markets (St.James LLS prices) Neat Barrels Long-term stability, reliability low cost transport to traditional and liquid markets Competes with rail and local refineries for incremental barrels Competitive for every incremental barrel (a lot of new barrels coming on) Source: Hess, Presentation Bakken Product Markets and Take-Away Denver Jan 31-Feb 1 2012 Energy Policy Research Foundation, Inc. 1031 31st St, NW Washington, DC 20007 202.944.3339 www.eprinc.org 41
Conclusions US and Canadian production surging Pipelines are being built, but right now their exists tightness need Gateway, XL, and Costal options for US and Canadian crude Rail is a serious option for US producers distanced from refining centers Rail could be an alternative shipping method for oil sands producers as they look to diversify their options and secure stable prices markets exist where pipeline doesn t (especially with XL delay and Gateway uncertainty) Blended bitumen needs to get to the Gulf and potentially PADD V Bakken light sweet needs to get to East Coast PADD I.only so much light sweet can be sent to Cushing and down into Gulf Energy Policy Research Foundation, Inc. 1031 31st St, NW Washington, DC 20007 202.944.3339 www.eprinc.org 42