Exacerbating the Brent-WTI price differential, Canadian oil blends (such as the benchmark Western Canadian Select or WCS) must compete with growing US production for the same pipeline routes, which can result in even larger price differentials.

When you have something to sell, it’s good to have a buyer, especially one that’s friendly, nearby and long-term. That’s what the United States (US) has been to Canada for dozens of years in terms of oil and natural gas. In fact, the US is virtually Canada’s only market for petroleum, currently buying 100% of our natural gas exports and 98% of our crude oil and liquids exports.

That probably sounds like a solid deal. We have it; they buy it. The problem is, the US is now on a path to become energy self-sufficient by 2020. That’s good for them, but it’s bad for Canada, since our only oil and natural gas market is drying up.

Clearly Canada needs to find new customers – other countries that need energy, such as China and its Asian neighbours. These nations are growing and thus, their need for energy is increasing significantly. Over the next 20 years for instance, China is forecasted to boost its demand for natural gas by a whopping 283% and its need for oil by 73%. Now that’s a great potential customer!

Even better, the price per barrel of oil overseas (based on the North Sea Brent benchmark) is higher than the price per barrel in the US (based on the West Texas Intermediate or WTI benchmark). The price differential between Brent and WTI fluctuates depending on a number of market factors. However, according to Joe Oliver, Canada’s Minister of Natural Resources, this differential means we are leaving upwards of $50 million on the table every day by selling oil only to the US.

“We’re losing some $50 million every single day because our resources are landlocked.”

– Minister of Natural Resources, Joe Oliver

What’s $50 million a day worth? A lot of health and safety for Canadians for one thing. For example:

  • One day would almost cover the frontline costs ($52 million) of the RCMP in BC for three years (Source: BC 2013 budget update).
  • Less than two days ($72 million) would pay for a year’s worth of medical, lab and drug supplies at Toronto’s SickKids Hospital (Source: Canadian Chamber of Commerce: $50 Million a Day).
  • Just over three days’ worth ($164 million) would pay for Saskatchewan’s health-related capital investments in this fiscal year (Source: Saskatchewan 2013-2014 budget).
  • The equivalent of 11 days ($550 million) would be enough to complete the twinning of Highway 63 between Grassland and Fort McMurray, Alberta (Source: Alberta 2013 budget).

There’s more. Canada is expected to double our oil production over the next two decades, making us the world’s fourth largest producer. (Our natural gas production will grow as well.) So not only could we sell our energy for more per barrel overseas, we will have more to sell going forward.

Then what are we waiting for? Well, first we need to expand our pipeline, rail and liquefied natural gas (LNG) infrastructure so we can get the oil and natural gas from where it’s produced to where it can be shipped to overseas markets. That’s a big challenge that we’ll cover in our next issue.

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