Canadian Oil Sands and its impact on the

Canadian Oil Sands and its impact on the United States New York Energy Forum New York City May 1 2007 Eswaran (Esa) Ramasamy Executive Editor, Global Oil Markets Platts, Calgary

Agenda • Introduction to Platts • Introduction to “oil sands” • Canadian crude exports to the US • Impact of Canadian crude on US crude oil markets • Q&A 1

Introduction to Platts The Mc. Graw-Hill Companies 2

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Oil Sands mined & in-situ methods used to separate oil from sand Crude Oil Practically all of the crude derived from oil sands is heavy crude with an average API of 20 -22 or what is commonly known as bitumen Synthetic crude Upgraded bitumen through a coking process that “lightens” the oil 5

Oil Sands. . . ØOil Sands – refers to the mixture of sand oil – found largely in northern Alberta ØCrude oil accounts for about 18% of oil sands composition ØIt takes about two mt of oil sands to produce 1. 2 barrels of bitumen ØAnd 1. 2 bitumen to produce 1 barrel of synthetic crude 6

Oil Sands. . . Cost of SSB production: $40. 13/bbl Source: Canadian Oil Sands Trust 7

Canada & Oil Sands ØCanada has bitumen reserves of about 175 billion barrels – second only to Saudi Arabia – CAPP ØCanada offers the most secure source of supply of crude oil to the United States ØCanada is the most stable crude producer in the world ØCanada is the largest supplier of energy to the US 8

Canada & Oil Sands. . . • CAPP estimates bitumen production to rise to 2. 9 -3. 5 million b/d by 2015 • By 2015 – it is estimated that Alberta would have slightly more than 3. 0 million b/d of upgrading capacity or the ability to produce 2. 5 million b/d of synthetic crude • AEUB believes bitumen production from Alberta would reach 4. 66 million b/d in 2025 from the current estimate of 1. 2 million b/d • Most of these output would most likely end up in the US 9

Canada & Oil Sands. . . Total Canadian crude oil exports to the US (‘ 000 b/d) 1. 2% Source: EIA 10 7. 8% 5. 2% 3. 2% 2. 0% 5. 6%

Canada & Oil Sands. . . 9. 4% Source: National Energy Board 11 4. 1% 5. 9% 6. 6%

Canada & Oil Sands. . . Source: National Energy Board 12

Canada & Oil Sands • Total Canadian crude production is expected to reach 4. 5 -4. 8 million b/d by 2015 • About 20% of this output would be convention crudes – Hibernia, Terra Nova and White Rose from Atlantic Canada • Bitumen production to be 3. 5 -3. 8 million b/d 13

Canada & Oil Sands – the Future • More pipelines – movement of more Western Canada crudes into PADD 1, 2, 4 & 5 • Expansion & reversal of existing pipelines to move Western Canadian crudes into the Gulf Coast • Upgrading of refiners in Gulf Coast to run Canadian heavy • Narrow WTI-Dubai spread – Is WTI weak or is Dubai relatively stronger • Is WTI reflecting economics of Cushing area or that of the US ? 14

More pipelines. . . • Enbridge expanding Spearhead line from Chicago to Cushing § Current capacity at 125, 000 b/d § Expansion to 190, 000 b/d – early 2009 § Further expansion to 260, 000 b/d – 2010 • Exxon. Mobil’s 66, 000 b/d Pegasus pipeline from Patoka to Nederland (reversal complete in April 2006) • Trans. Canada’s Keystone project § 450, 000 b/d from Hardisty to Wood River to Cushing in 2009 • BP’s proposed reversal of its 100, 000 b/d Cushing to Chicago crude line – mid 2009 with possibility of expanding to 200, 000 b/d 15

More pipelines. . . • Kinder Morgan expanding Trans Mountain line from current 260, 000 b/d to 300, 000 b/d in 2008 and 400, 000 b/d in 2009. • Enbridge’s move to expand/build new 300, 000 b/d line from Chicago to Philadelphia, Baltimore or New Jersey. • Teppco’s 350, 000 b/d jv Seaway pipeline linked to Enbridge’s Spearhead. • Enbridge’s plan to build a 400, 000 b/d Alberta-Texas line. • Altex Energy’s 250, 000 b/d Alberta-Gulf Coast line – due in 2011 -2012. 16

Pipelines. . . 17

Canadian exports – Impact on US • Is Canada hooked on PADD II for outlets ? • Evidence shows though Canadian exports are targeting the US – efforts are underway to develop markets within Canada – ie, in PADD II and PADD III (Gulf Coast) • As more modifications are done refiners in PADD IV – demand for Canadian crudes would rise from refiners in Colorado, Montana and Wyoming 18

Canada exports & US. . . • What does all these Canadian exports have on WTI § Startup of Spearhead in March 2006 did have bearish impact on WTI § Startup of Pegasus line in April 2006 also did have a bearish impact on WTI Spearhead Pegasus 19

Canada exports & the US Pegasus Spearhead 20

WTI – benchmark status questioned • In March, value of Brent rose well above WTI • Leading many players to question if WTI truly represents US crude supply demand or that of Cushing alone. • Outage of Mc. Kee refinery in February cause of WTI going into contango – while WTI-Brent spread inverts and WTI-Dubai spread narrows sharply. 21

WTI - benchmark status questioned Mc. Kee outage 22 Whiting problem

WTI. . . • Mc. Kee outage trapped WTI within in Cushing • Ability of WTI to move north via other pipelines was also limited because of Whiting refinery problems in late March added to WTI’s contango • Incoming Canadian WCS & Syncrude added to the problem • Leading many to question WTI’s ability to reflect US crude demand/supply balance as opposed to Cushing’s supply/demand balance 23

WTI. . . • What is interesting of the current WTI-Brent inversion – has happened in the past – but now it has stretched itself all the way to H 1 2008 • Benchmarks have in past been inverted – when Dubai was higher than Brent – but this was short term phenomenon • In the case WTI – some think the fundamentals have changed and that there is no reason why WTI must be higher than Brent – other than for linear reasons 24

Cushing crude oil storage capacity 2007 end-2007 Enbridge 12. 80 16. 70 BP 10. 00 Plains 7. 40 10. 60 Sem. G 4. 30 TEPPCO 1. 95 Total 36. 45 43. 55 All figures in million barrels Source: Platts 25

WTI-Brent swaps spread. . . 26

WTI. . . • While WTI was being inverted to Brent – the WTI-Dubai spread was also crunching in sharply • On May 12 – at the close of the Asian day – the May NYMEX WTI-Dubai swaps spread narrowed to an all time low of +$0. 87/bbl • What the narrow WTI-Dubai spread implied was that Latin sour crudes would now move to Asia – also exerts bullishness on US sour crudes 27