From where? Fighter jets? Ballet shoes for Quebec? Indian Reserves? Interest on debt?
None of the above.
An estimated $20B is lost simply by having to discount our oil because of bottlenecks in distribution.
What is the fix? Is it easy to fix? Yes!
All it takes is two pipelines.
A glut of oil from multiple continental sources, including the Alberta oilsands, and inability to move it to market due to pipeline bottlenecks is resulting in large discounts for western Canadian crude compared to North American benchmark West Texas Intermediate and international Brent prices.
The price spread, for example, is costing Alberta $8.5 million a day in royalties — or more than $3 billion a year — and the entire Canadian economy nearly $20 billion annually, according to various estimates.
“It’s a real concern. It’s a growing concern,” Oliver said of the price spread, during a 2013 look-ahead interview with Postmedia News.
Oliver said he believes the Obama administration will soon approve the rerouted Keystone XL project. The pipeline would transport oilsands crude from northern Alberta to refineries on the Gulf Coast of Texas, as well as help alleviate a backlog of oil in the U.S. Midwest. The difficulty in moving North American crude to tidewater is causing it to trade at discounted prices compared to imports.
He also stressed the importance of a west-east pipeline system in Canada and for additional export capacity off the West Coast to move Canadian petroleum to Asian markets (the Northern Gateway oilsands pipeline is undergoing a regulatory review).
“The critical issue is to diversify the markets. If there was a game changer in 2012, it was a realization that diversification is utterly crucial,” Oliver added.
“We absolutely must be able to transport the resources to tidewater, and to do that, we need the infrastructure built — build the pipelines — and we’ve got to move not only west, but we’ve got to look at the east as well and hopefully the south also.”
Currently, a barrel of Western Canadian Select, which includes Canadian heavy conventional oil and bitumen crude, is worth slightly more than $60 — a discount of around $30 per barrel compared to the North American benchmark West Texas Intermediate (which is selling for about $92 US per barrel).
The gap is around $50 a barrel compared to the international Brent prices of approximately $112 US per barrel.
The price discount is costing provincial governments and petroleum producers billions of dollars annually, with some of the big banks pegging estimated losses to the Canadian economy at $18 billion or more a year.
The situation comes as a recent report from the International Energy Agency said the United States — Canada’s main energy customer — will become the world’s top oil producer by the end of the decade and eventually be energy self-sufficient over the next few decades.
At the same time, Oliver notes 99 per cent of Canada’s oil exports and all of its natural gas exports are going to the U.S., a trend that must change if Canada is to truly capitalize on its abundant natural resources and capture world prices.