AAPG Annual Convention and Exhibition

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Impact of Canada's Bitumen Accessing a Market in China


With Cdn$314 billion of post-tax present value in the ground, we view Canada's oil sands as one of the last material resource capture opportunities. The scale is impressive with four million barrels per day of bitumen production forecasted in 2020. For perspective, this is double the amount of tight oil projected from the prolific Eagle Ford. This level of output has undeniably resulted in growing pains. By 2017 we see production exceeding current takeaway capacity. Luckily help is on the way in the form of proposed pipelines, and rail can provide fit-gap solutions. The most interesting scenario involves Northern Gateway (we project on-stream in 2023) and TransMoutain Express (we project on-stream in 2018) which both terminate on Canada's West Coast. Asia now becomes accessible to a heavy Canadian oil sands barrel. China also happens to be the single largest heavy crude demand centre other than the US. Our analysis on the refining value of WCS (Western Canadian Select) indicates that China places the highest price on this heavy crude, over a five percent premium to the US Gulf Coast. However, regardless of this new market, we expect a WCS barrel to trade US$20 to US$27 below WTI onward into the next decade. This impacts economics of projects and causes operator to rigorously vet and re-evaluate prior to a final investment decision (FID). In the past year we have seen an upgrader indefinably suspended as diluting bitumen is providing more favourable economics. We have also recently seen a SAGD project phase delayed by years while the expansion and new technologies are reconsidered. This presentation will discuss the challenges and opportunities for extracting bitumen. We will then chronicle the journey of a heavy oil barrel as it searches for the best price in the market to maximize the producers value capture.