Bitumen's Deep Discount Deception and Canada's Pipeline Mania: An Economic and Financial Analysis

The research for Bitumen’s Deep Discount Deception and Canada’s Pipeline Mania: An Economic and Financial Analysis was motivated by a series of news reports.

These reports warned that a “supply glut” of crude oil in Cushing, Oklahoma was responsible for a deep discount in western Canadian crude prices made up of two components–western Canadian crude discounted to the North American benchmark West Texas Intermediate (WTI) and then a double hit because WTI was discounted to international benchmarks such as Brent. These discounts, we were told, meant oil producers suffer vast losses and their losses severely cost the Canadian economy. Some analysts offered estimates of this cost.

The advocates of the deep discount narrative claim that the solution to the problem is the approval of bitumen export pipelines Keystone XL, Northern Gateway and Trans Mountain’s twin.

There is no double discount cost to the Canadian economy.

1. Western Canadian unconventional heavy (WCS) and light crude (SCO) oil experienced normal differentials as compared to WTI in 2012.

2. The majority of oil sands supply comes from producers who are also integrated downstream operators and they make up the difference in the second step–the WTI to Brent spread–in their refinery margins.

3. It is effectively Canadian consumers and businesses that are price-gouged at the pumps. We pay petroleum product prices as if all Canadian crude oil was purchased by refineries at Brent prices–as if we imported all our crude oil from foreign markets.

4. The “supply glut” in Cushing, Oklahoma was largely industry induced and much of it was anticipated. It is expected to be sorted out within the next year, or so, as companies solve their technical difficulties with refinery and pipeline capacity expansions. This throughput realignment will occur without approval of the three bitumen export pipelines.

Please download Bitumen’s Deep Discount Deception and Canada’s Pipeline Mania: An Economic and Financial Analysis to find out more.

The day after the release of Bitumen’s Deep Discount Deception, CIBC World Markets released a short report claiming losses from the double discount. I contacted CIBC to request their underlying analysis. Unfortunately CIBC will not be transparent or accountable for their calculations and refused to discuss their figures or the shortcomings in their methodology. I have addressed the recent claims in an article published in the Tyee “Oil Sands Money ‘Left on the Table’ and More Myths”.