API/Blogger Conference Call
Happy Thursday to you. A week ago Tuesday, I talked about the Keystone XL Pipeline. This past Thursday, API had one of their famous API/Blogger Conference Calls on this very subject. Here is the Trascript. Have a GREAT Day. See you soon.
Jane Van Ryan, API
Marty Durbin,Executive Vice President of Government Affairs,
API Cindy Schild, Refining Manager,
API John Kerekes, Director, Central Region,
API Janet Annesley, Vice President of Communications,
Canadian Association of Petroleum Producers
Rayola Dougher, Senior Economic Advisor,
API Peter Lidiak, Pipeline Director,
API Sabrina Fang, Media Relations Representative,
API Thursday, June 16, 2011
Transcript by Federal News Service Washington, DC
Brian Westenhaus, New Energy and Fuel
Gail Tverberg, The Oil Drum, Our Finite World
Geoff Styles, Energy Outlook
Joy McCann, Right Network, Little Miss Attila
Lew Waters, Right in a Left World
00:13 MS. VAN RYAN: And we’ve got a few people on line now, so why don’t we go ahead and get started? And I’ll remind you all what the rules of engagement are here today. First of all, the topic, as you know, is oil sands and the Keystone XL Pipeline. If you have other questions, we’ll try to address those, as well. The blogger conference call today will be recorded, as they always have been in the past. And we’ll put up the audio file and the transcript online at the Energy Tomorrow Blog as quickly as we can. We believe it probably will be Monday before we can actually get them posted, and at that point I’ll send a link out to all of you so you’ll have an opportunity to take a look at those. I’ve got several people on the phone with us today that can answer questions about oil sands and the Keystone XL Pipeline. Let me give that information to you:
The first person that we’ll address some questions to will be Marty Durbin. Marty is API’s executive vice president for federal relations. We also have Cindy Schild, who is API’s refining issues manager. John Kerekes has called in, he is API’s Central District director, and we have a special guest, Anna – I’m sorry – Janet Annesley, who’s the VP for communications at the Canadian Association of Petroleum Producers. So it’s always nice to have a representative from our friendly neighbor to the north, who’s on the ground and knows the oil sands probably better than any of us on the call because she sees it quite frequently. So Janet, thank you for joining us.
1:50 JANET ANNESLEY: My pleasure.
1:51 MS. VAN RYAN: Now, we’ve got quite a few bloggers on the call. I am expecting more. I think some will be joining us late because of Anthony Weiner’s announcement. So let’s go ahead and move forward. And Marty, the reason why I thought we should direct questions to you first is because this morning API put out a news release stating API’s support for a measure that was passedthrough a House subcommittee yesterday that would, in essence, force the administration tomake a decision on the Keystone XL pipeline by November 1st.
Can you perhaps describe API’s position on this?
2:35 MARTIN DURBIN: Hello, Jane, and again, thanks for – thanks, everybody, for joining us. And I’ll just make a brief – some brief comments, and then turn it over to Cindy for more of the detail here.
But as Jane said, you know, we’ve got that legislation moving through – moving through the House of Representatives that passed through a subcommittee of the Energy and Commerce Committee yesterday, that would essentially just mandate that, you know, a decision be made by November 1st on the Keystone XL pipeline approval. You know, we, of course, have been very strongly supportive of the pipeline for what we really see as a – just a win-win all the way around, from energy security to economic development and revenues for the government – you know, jobs immediately. You know, this is the largest shovel-ready project we have out there. And this is a – you know, a process that is now entering into its – into its third year – you know, taking much longer than we think it should have.
But again, I think we’re seeing growing support for the pipeline and for the further utilization of Canada’s oil sands both in the Congress and out in the states. I’m happy to say that we’ve seen a lot of governors and mayors and others join in support of the pipeline, as well as avery strong support from organized labor, both at the national level and again out in the local sand at the state council level, as well.
So, you know, we just think that as we look at the opportunities we have at a time of unemployment, high unemployment, and when we’re trying to help the economy recover and improve our energy picture, this is a clear win for everyone, including the administration. And we’re hopeful to work with them – continue working with them closely as they get to thatdecision point. So, Jane, why don’t I stop there? And you want to turn to Cindy?
4:30 MS. VAN RYAN: Sure. Cindy, do you have something you’d like to add?
4:35 CINDY SCHILD: Sure. Good afternoon. As Jane mentioned, today API is highlighting the enormous economic benefits of approving the Keystone XL pipeline. The $7 billion Keystone pipeline expansion will greatly increase the availability of crude oil from Canada’s oil sands to U.S. refineries, and will generate as many as 20,000 new U.S. jobs. Yet jobs from the pipeline represent just the tip of the iceberg of what Canadian oil sands development could do for U.S. economic growth and job creation. Almost 1,000 American companies from 47 states are already involved in the development of Canada’s oil sands. And according to the Canadian energy – (audio break) – U.S. jobs supported by oil sands development in Canada could grow from 21,000 jobs in 2010 to 465,000 in 2035. So for every two Canadian jobs supported by oil sands development, one job will be created here in the U.S.
And because Canada is already our largest trading partner, the economic benefits from oil sands development in both countries are significant. For every dollar the U.S. spends onCanadian products, including oil, Canadians return up to 90 cents through purchases of U.S. goods and services.
The Keystone XL pipeline will also significantly strengthen our energy security, because it will increase our capacity to import oil from a friendly, reliable neighbor and process it into usable products in U.S. refineries. We currently import more than 60 percent of our crude oil. About one-fourth of that comes from Canada, our largest foreign supplier. We are now importing more than 2.1 million barrels of oil a day from Canada. With a pipeline, our crude imports from Canada could soon approach 3 million barrels a day – twice of what we currently import from the Persian Gulf. Cambridge Energy Research Associates projects Canada could supply 5 million barrels of oil a day to the U.S. in 2035, or one in every four barrels Americans are expected to consume.
The Department of State has conducted an extraordinarily thorough environmental review of the Keystone XL project, involving multiple federal, state and local agencies, providing extended opportunity for public input throughout the process and including comprehensive analysis of alternate routes. And nothing in their supplemental draft environmental impact statement changes the bottom line. In the State Department’s own words, no new issues of substance emerged. So we continue to urge the department to finalize the EIS,to make its national interest determination and approve this critical project. Following nearly three years of review and assessment, it’s time to let this important project move forward.
Pipelines have a long history as a safe, reliable and well-regulated way to move crude oil and petroleum products. The Keystone XL pipeline will be built to the most advanced specifications, and will be monitored and maintained by state-of-the-art technologies.
It’s also important to recognize that the oil delivered by the pipeline to U.S. refineries isvery similar to crude from California, Venezuela, Mexico, crudes that are already processed here in some of the most advanced refineries in the world.
And as we say in our comments to the State Department, it’s time for this vital project to move forward. Oil will continue to be a critical part of the nation’s energy mix for the foreseeable future. We have the opportunity to enhance domestic energy security, cooperation with Canada – our largest trading partner, friendly neighbor to the north.
Canadian oil sands development will continue with or without approval of this pipeline; other nations will aggressively develop this key strategic resource for their future energy needs if we fail to act. The U.S. should approve this pipeline to utilize this resource to enhance our energy security, our national security, preserve our global competitiveness and maintain our role as a world economic leader.
We’ll now be happy to answer your questions.
9:10 MS. VAN RYAN: Thanks, Cindy. I appreciate that. And who’d like to begin?
Who has a question for any of our speakers today? While you’re thinking about your questions, by the way, let me mention that I neglected to say two things. First of all, Rayola Dougher is also in the room at API. She’ll be able to answer virtually any question you may have –(laughter) – about the oil and natural gas industry.
And furthermore, I’m also online at the same time that we’re on the phone, so if you have any questions that you want to submit by email, that’s fine; I’ll be monitoring my email account as well.
So, who’d like to go first?
9:49 GAIL TVERBERG: Hello, this is Gail. I was wondering, now, the proposal, you know, that’s covered by the legislation and such, would that extend the pipeline all the way down to the Gulf Coast, or just to Cushing? Because my impression is, really, what we need is a pipeline down to the Gulf Coast; dumping more oil into Cushing doesn’t help us nearly as much because the refineries there are pretty much full up. We need a way of getting the oil all the way down to the Gulf Coast where there’s plenty of capacity.
10:22 MS. SCHILD: Yeah, exactly, Gail. It is going – it would go down to the Gulf.
And you’re exactly right; that’s where it’s needed. That’s where the most refining capacity is in the U.S. And that’s where we have the most complex or advanced refineries that would be capable and have invested to be able to process this crude.
So you’re absolutely right. Maybe the little bit they use – the Cushing element is, there are two extensions to the pipeline. One would be to help alleviate some of the storage issues at Cushing, some of the terminals there. But it would still be bringing the crude to the Gulf Coast,the refining regions there.
In addition, the other arm would also create the ability to transport domestically produced crude oil and bring that via the pipeline down to the Gulf Coast.
This is Cindy.
11:29 MS. VAN RYAN: Do we have other questions?
11:34 MS. TVERBERG: So what exactly is the plan for November? I mean, that legislation – would that just get the president to act to consider the question in general, or you know, this is all come sort of piecemeal, that you kind of – then, you look at that piece, and then you decide whether – well, we’re just going to build another pipeline to Cushing, and we won’t decide on all of these different pieces, whether we’ll pick up the Bakken stuff from North Dakota or whatever else.
12:05 MR. DURBIN: Well, the purpose of the legislation is not – is really just to – oh, this is Marty Durbin – it’s just to accelerate the decision, to make sure that this decision by the administration is made before the end of the year. So it – you know, it will continue to require coordination among the various agencies. It’s just, you know, essentially saying, this has gone on long enough. We’ve had extensive review of the pipeline itself. It had, you know, meetings throughout every affected state and community where the pipeline is going – and trying to put a date certain on the endgame.
Again, in either case, we’re hopeful that the decision is going to be made, you know, before the end of this year to allow the project to move forward.
12:53 MS. TVERBERG: Thank you.
12:55 MS. VAN RYAN: Marty, this is Jane. It’s my understanding that Secretary of State Hillary Clinton was expected to make a decision on the pipeline earlier this year, and then it was delayed. Is that correct?
13:06 MR. DURBIN: Well, you can – actually, there’s a lot of different steps in the process here. And in all honesty, we expected a decision last – about a year ago. And it was –you know, concerns were raised within the environmental community, within the administration.
So they extended the process. At the time, we thought it was going to be a 90-day extension.
Well, it just – it continued to be extended.
So again, we think that the Department of State has done extensive review. They’ve not only did, you know, a draft environmental impact statement, they went back and did a supplemental draft environmental impact statement – continued to say, we’ve seen nothing in there-review that changes the earlier conclusions that this project should move forward.
13:49 MS. VAN RYAN: Very good. Thank you. I think that helps put it in context.
Does that help, Gail?
13:53 MS. TVERBERG: Yeah, thank you.
13:55 MS. VAN RYAN: OK. Additional questions – about oil sands development, about the Keystone pipeline?
14: 04 LEW WATERS: Jane?
14:05 MS. VAN RYAN: Yes.
14:05 MR. WATERS: This is Lew Waters. I got a question.
14:05 MS. VAN RYAN: Uh-huh. (Affirmative.)
14:08 MR. WATERS: She said earlier that the pipeline would be monitored by the latest state-of-the-art methods. Could she touch on those a little bit? We have a lot of environmentalists out here that are going to fight this tooth and nail, I’m sure. And it’d be nice to know just what she means by “state-of-the-art methods.”
14:26 PETER LIDIAK: This is Peter Lidiak. I’m the pipeline director at API. And when we’re talking about state-of-the-art methods, we’re talking about supervisory control and data acquisition systems where they have thousands of points along the pipeline that can monitor conditions, measure pressure drops, et cetera. That’s tied into leak detection systems. And you know, it’s already – that’s already been seen that these systems can catch changes in pressure at avery quick basis. And that’ll be a feature of these new – the new pipeline.
And in addition to that, it’s all the other technologies that go into modern-day pipelines.And that includes corrosion protection systems that will be put in place, as well, as part of thenormal construction that happens with modern-day pipes.
15: 22 MS. SCHILD: Thanks, Peter.
15:23 MR. WATERS: Thank you.
15: 25 MS. SCHILD: And this is Cindy again. One of the things that was considered in the application, and TransCanada is going to comply with, is an additional 57 special conditions that go above and beyond the regulations that would be required by the Department of Transportation in this permit for this pipeline.
15:54 MS. VAN RYAN: Very helpful. Other questions?
15:58 MR. WESTENHAUS: Brian Westenhaus.16:01
MS. VAN RYAN: Go right ahead, Brian.
16:03 MR. WESTENHAUS: Well, I’m just curious. How serious are these objections,and how much time is expected to get through them all?
16:09 MS. SCHILD: (Chuckles.) Well, it’s already been quite the process. I mean, you know, our understanding is, to permit a pipeline in this situation average, you know, 18 to 24 months. We’re already, you know, butting up on 34 months. So certainly can’t make any projections, but that’s why, you know, this legislation is valuable to set some time frames. The State Department certainly wants to get something out by the end of the year, but you know, EPA has come up with additional – it’s just some concerns with the assessment, although they have improved their rating.
So I think at this point, it’s to be determined. We’re waiting – I guess the next several weeks, we will see, as the supplemental draft becomes final, how the Department of State and EPA and the mutual agencies are able to come up with the answer – what the final environmental impact statement looks like. And we certainly believe they have done an extremely thorough analysis from all aspects and all accounts. So that’s what we’re going to have to see. And we certainly, you know, do not believe that any more time is needed to delay this project further.
17:40 MR. WESTENHAUS: Well, are that – does that make them stalling tactics, or is there anything realistic in it that will actually, you know, put – really cast some doubt on it?
17:47 MS. SCHILD: The concerns that are raised are similar to those in the past. It’s the same in the past, whether it was as far as what the route is, environmental justice, greenhouse gas analysis. And again, based on our review, these have been addressed in the supplemental analysis.
It’ll be up to the State Department to, you know, determine that and work with EPA on how they’ve been addressed and the thoroughness as to how they’ve been addressed.
18:21 MR. WESTENHAUS: Do you expect a court fight after the State makes up their mind?
18:27 MR. DURBIN: This is Marty Durbin. I think that’s – now, just seeing the way things have played out here, I don’t want to predict, but I won’t be at all surprised if there’s alegal challenge to the final decision. Again, this is a process that has been used many times, legitimate concerns are raised during the process; they’re addressed. And we think EPA – or Department of State has gone above and beyond.
And in fact, just as Cindy was saying, once the environmental impact statement is made final, they’ve already announced they’re going to hold six more public hearings – you know, one in each of the five states where the pipeline is traversing, and then another here in Washington, D.C. So you know, our view certainly is that there has been ample opportunity for anyone with concerns to, you know, have those addressed. And that – So once you get past that, yeah, I mean, it does start to look like you’re dealing with stalling tactics.
19:28 MR. WESTENHAUS: So we’re still looking at years, and not months.
19:30 MR. DURBIN: No, we’re – no, we’re going to continue to be as hopeful as we can. And the Department of State is still indicating that they want to make a – they want to make a decision by the end of this year. And certainly, for the project’s sake, for the investments that have already been made, and the plans for getting it up and running, if they don’t have that approval, it’s going to – it’s going to put some serious kinks in the plans, you know, to get it upand running.
19:57 MR. WESTENHAUS: Are there any consumer interests being heard, or is it all industrial and environmentalists?
20: 03 MR. DURBIN: I’m sorry, any –
20:04 MS. SCHILD: Consumers.
20: 06 MR. WESTENHAUS: Is there a consumer view, or is it – does it get expressed, or is it all environmental objections?
20: 11 MR. DURBIN: Well, I don’t want to make it sound like there’s only objections being raised. You know, we’ve just had – you know, during the comment period for the supplemental, there were nearly 90,000 positive comments submitted to the – you know, to the Department of State. And as I noted before, when you got the – you know, many of the national and local labor unions, mayors, governors and others, you know, they certainly are representing the consumer view, among others, not just – this wasn’t just industry views, you know, that had– industry versus environmental considerations.
Throughout the process, we’ve seen other groups – we had a group of veterans andretired military leaders that, you know, supported the pipeline for the national security benefits that come from this.
So we – I mean, again, our view is that there have been very broad support, you know, for the project. And again, yes, there are critics, and they’re going to continue to raise concerns.
But we think, you know, the job has been done to analyze the project. Time to move forward.
21:18 MR. WESTENHAUS: That helps. Thanks.
21:22 MS. VAN RYAN: Additional questions.
21:26 MS. TVERBERG: This is Gail again. I was wondering if you could talk a little bit about whether this, the products that are being sent – the bitumen – (audio break) – natural gas liquids or with whatever – a bunch of Canadian slag. Do they tend to separate out more than some of the other kinds of heavy oils? You know, I think that’s been one of the concerns raised by some, that there would be problems with the pipelines that way if you got separation.
21:59 MS. SCHILD: Gail, that’s a – this is Cindy – there’s certainly been some accusations to that regard. But what, you know, often gets misrepresented and should be considered is that anything that goes into a pipeline has to meet the same criteria across the board, so there’s not special circumstances or certain pipelines that are going to be built for certain types of crude oil. It’s going to be the same standard, the same stringent standards, between Canada, the U.S., to transport these crude oils.
So there’s nothing different about the crude, the nature of the crude that’s being transported. It’s not heated. It’s not more corrosive. Those kind of aspects are some of the things. The fact is, crude oil is crude oil, that’s being transported via pipeline.
And another myth is that this stuff is new. We’ve been processing oil-sands-derived crude for decades in the U.S. What we’re able and will be able to do is process more of it with this pipeline. It’ll create more supply flexibility for our refineries in the U.S.; but it’s not new.
23: 21 MS. VAN RYAN: Janet, would you like to weigh in on that, too, on the type of crude oil that’s being produced up there and its qualities?
23: 30 MS. ANNESLEY: Sure. As Cindy outlined, crude is crude. There’s specific pipeline standards that must be met to put crude into pipelines, and those are consistent regardless of the origin of the crude. We’ve been transporting bitumen and synthetic crude oil products basically in Canada for now over 50 years, and according to the Energy Resources Conservation Board, our primary regulator in the province of Alberta, there’s absolutely identical pipeline safety records for conventional crude and bitumen or synthetic crude oil pipelines. So it’s something that we know from experience can and will be done safely. And moreover, I think from the Canadian perspective, to – directed to the refinery flexibility question, you know, to bevery clear, our Alberta government here in the province of Alberta, as well as the Canadian federal government, support development of oil sands, within specific environmental guidelines.
So the decision to be taken by the U.S. is not whether the oil sands reserves will be developed; it’s a matter of whether or not the U.S. would like to have these crudes and for – to help meet their energy needs. And every barrel of oil sands crude that comes to the U.S. displaces a foreign barrel from another source. And particularly when it comes to the U.S. Gulf Coast, those other foreign sources are Venezuela and Mexico. Mexico, as you know, is in decline, and Venezuela has chosen to take its oil, which is very similar to Canadian crude oil, elsewhere. So, you know, Canadians are not suggesting that the U.S. should use more oil; we’re just suggesting that the U.S. should use more Canadian oil.
25:22 MS. VAN RYAN: Very good. Thank you. I think that helps a lot.
25:24 MR. STYLES: Jane, this is Geoff Styles.
25:26 MS. VAN RYAN: Yes, Geoff.
25:27 MR. STYLES: I’ve got – now I’ve got two questions. I had one question before.
MS. VAN RYAN: (Laughs.) Go for it.
25:30 MR. STYLES: If I can throw them both out there, the first question relates to the last piece of the conversation here. I guess this is the first time in more than 30 years around the industry that I’ve ever heard a refiner say that crude is crude. And I’d like to hear a little more about some of the investments that are being made in refineries in order to be able to run the oilsands crude, and particularly where those might be regionally, and how that relates to the pipeline.
And I guess the other question really goes more to the – what I think is a very interesting scenario that API has put out indicating that the vast majority of U.S. liquid fuel needs could be met by sources in North America within a relatively short amount of time, depending on access and transportation. And I’m interested, or sort of intrigued by the interaction between that and the shale gas revolution. I mean, to what extent is the explosion of shale gas production both in the U.S. and Canada actually changing the supply perspective for the oil sands? Is it making more oil sands projects economical and ultimately increasing the total amount of oil sands that can come to market?
26:47 MS. VAN RYAN: Who’d like to start? Cindy, do you want to talk about the changes being made at the refineries?
26:52 MS. SCHILD: Yeah, I can talk about the first one. And a good point, Geoff, in the– that crude is crude. And I guess maybe it’s a matter of semantics in the standpoint, yes, obviously there’s many different types of crude oils, natures, characteristics. And I think what we mean by that is crude oil is inherently crude oil. So, yes, there are a range of different characteristics, and obviously we know there’s lighter crude oils and heavier crude oils. But it – what we mean is if you have crude derived from oil sands, it still has to meet the same criteria other crude oils being transported via pipeline would meet to be processed; meaning some of the accusations in that, oh, it’s heated, or it’s being, you know, mixed with, you know, a – some sort of diluent that’s going to make it more corrosive – that these corrosive qualities are, you know, not true, because they have to meet the criteria, or the same standards, to be transported.
28:07 MR. STYLES: So what you’re saying is that to a pipeline, crude is crude.
28:08 MS. SCHILD: Yes, when it’s being transported. Exactly. Of course, there’s different natures of crude, yes. Yes. So, better qualification there.
As far as – to the point about a refinery, there are different investments being made in order to up – that would be to process the heavier grades of crude. Now while in the U.S., we’ve been processing heavier blends, we’ve been upgrading refineries for years to have some of the most complex refineries in the world. There may be a little bit more that needs to be done with –for some of these – for oil sands. So you may have the need for additional coking capacity, maybe some vacuum distillation. There may be the need to add some sulfur recovery units or hydrogen production, since the heavy oil processing demands more hydrogen use than a conventional – a light oil. You may have some more metallurgy upgrades if you’re processing some more of the bitumen on the site; hydroprocessing in order to produce the proper dieseldistillate product quality.
So it kind of depends, based on your product specifications, the size of your refinery, what you already have, what your conversion plans are, your feed stocks and the mix with the other crudes, in what exactly you would have to do. But that’s a little bit of the type of units or investments that you would need when considering, and what’s being done at refineries in order to be able to produce the clean fuels and meet the specifications that are required here in the U.S.
30:12 MR. STYLES: But could I just stop there and ask for a minor clarification? I definitely understand everything that you just described. And I’m just curious, I mean, to what extent are those investments factored into the overall economic impact of putting in this pipeline, particularly in terms of jobs, investment and things like that?
30:31 MS. SCHILD: You know, when – you know, in any estimates that we’re providing, they’re not being linked. They were when we were talking about it a little bit a few years ago, we’d be giving some estimates on the refinery jobs. I know there’s still a couple thousand contractors down at Port Arthur in Motiva, Motiva’s Port Arthur expansion. But the – you know, the fact is, I think, you know, as Janet just said, if they – if we don’t get the crude through the pipeline from Canada, you know, they’re – U.S. demand for oil is going to still be here for the foreseeable future. It’s going to be – so we’re going to get it from somewhere. So the Gulf is a prime area to be able to import from a foreign source, so if we don’t get it from Canada, we’re going to get – and it’s still going to probably be a heavier mix, because that’s how they’re configured. So the oil is going to go in, and we’re probably going to be refining a lot of it in the Gulf.
So, I mean, I think it’s just, you know, about what makes – what makes sense and what’s going to be best for – someone asked about consumers – what’s going to be best for consumers in this country. Do we want to, you know, be working with our number-one trading partner, where there’s a lot of reciprocity and benefits and the ability to help our economic recovery and manage it probably more environmentally sound in North America, or do we want to be looking elsewhere for our future oil needs?
32:10 MS. ANNESLEY: I’ll just add that, you know, the reciprocity – that involves the Boston Bruins winning the Stanley Cup. (Laughter.)
32:16 MS. SCHILD : Yeah, yeah, I guess they weren’t too happy up in Vancouver, huh?
32:20 MS. ANNESLEY Oh, you apparently made Vancouver very, very angry about things. (Laughs.)
32:25 MS. SCHILD : Yeah, you know, I think Canada’s nice image may have – took a little hit. (Laughter.)
32:35 MS. ANNESLEY : It’s too bad that about 30 people could really do all that, but, yeah, absolutely. (Laughter.)
But I thought I might just pick up and answer, I think, the second part of the discussion question around shale gas and how that interacts with the oil sands business. Natural gas is aprimary energy source for oil sands operations. The oil sands companies use natural gas togenerate heat and steam. That heat and steam needed to wash the oil off the sand. And we’ve made tremendous strides in actually reducing our greenhouse gas emissions by switching fromcoal-fired electricity to natural gas cogeneration processes in order to generate the heat and the power needed for our processes.
So for oil sands operators, the shale gas revolution has meant, actually, lower gas prices, which, in the context of their operating costs, has become a good thing. So while, I think, at amacro level, we take the view that, you know, we need the right fuel in the right place at the right time – and oil is a very fungible, transportable product – so when we look at the potential markets for oil sands vis-à-vis the markets for natural gas and whether or not they’ll lead majorfuel-switching in the economy, we see the areas where there will potentially be fuel-switching from in transportation fleets, for example, to natural gas.
But, as Cindy outlined, they’ll still be, in just about any scenario I’ve seen from the International Energy Agency or the DOE or some of our member companies or Cambridge Energy, there is still – the U.S. and Canada, for that matter, is still going to have a strong oil demand. So in a world where oil becomes more precious and more in demand because of thegrowth in India and China, the barrels that you see coming into North America today from Saudi Arabia, from Nigeria are likely to be in demand in those other markets.
So in that scenario, we see increased opportunity to have a North American domestic supply picture. And, you know, obviously, Canada’s oil sands are a part of that picture, but not in direct competition for natural gas. The world’s energy needs are growing and we’re going to need all sources of energy going forward, is the view.
35:02 MS.VAN RYAN: Thank you, Janet. May I ask who just joined us? I guess not. All right, let’s move forward. Geoff, did you have a follow-up question?
35:15 MR. STYLES: No, I think that really addressed everything that I was looking at. But, I guess just on the final piece there, does shale gas and the impact on prices actually translate into more oil sands?
35:30 MS. ANNESLEY: I would say it does not translate into more oil sands.
Producers who are investing in the oil sands business are – they’re looking at both the commodity prices and different strip prices in relation to oil and to gas on, you know, obviously, pricing for oil on the revenue side and for gas on the cost-input side.
So, you know, they’re looking at, obviously – when I – I used to be at one of the companies that started an oil sands project in 1999, when oil was at $11 a barrel. And I can’t remember what gas was at, but it was probably much higher in comparison to what it was today.
So there’s a variety of those factors. But none of them, I don’t think, would be short-term enough to actually impact what is ultimately a 30- to 50- year time horizon for investment decisions.
36:22 MR. STYLES: Yeah. I mean, maybe the other way to think about it is that the oil– that the shale gas is actually enabling oil sands not to compete so much for natural gas because, I mean, the common complaint that I see about the oil sands is that, in effect, in the views of environmentalists we’re turning a clean fuel – natural gas – into a dirty fuel. But if there’s plenty of natural gas, then you don’t have that competition.
36:55 MS. ANNESLEY: Yeah, and you’re right: There’s still the price – the price of natural gas is low. And I think the fact is, we used to really view natural gas as a more limited resource. But now, certainly with shale gas, it is a far more abundant resource. But I don’t think that argument from the environmental community has gone away. The bottom line is, at the end of the day, you’re trying to maximize your energy return.
So in our producers’ views, whether or not it’s natural gas, it’s used to generate electricity, they’re just simply looking for the most efficient way to do that. And also, in a world that contemplates – here in Alberta, we operate under carbon regulation of $15 a ton. It’s also ina world where that needs to be reflected.
They’re also looking for the most low-carbon source of electricity balanced against economics in order to deliver that.
37:41 MR. STYLES: Thank you.
37:43 MS. VAN RYAN: Very good. Additional questions? Questions perhaps about the oil sands development and production methods? Janet, we have two people on the phone call with us today who actually have been up to see oil sands. They’ve seen both the mining portionand the SAGD technology, which is quite impressive. Janet, is it fair to say that we’re going to see more SAGD as time goes on?
38:12 MS. ANNESLEY: Yes. In fact, I don’t recall the exact number, but CAPP [Canadian Association of Petroleum Producers] just issued in April – sorry, in May, our updated 2011 crude oil forecast. So if those on the call haven’t seen it, please visit the CAPP website at www.capp.ca. But, actually, just looking here, it is at – in 2015, we expect in situ production to actually be more than mining production for the first time. And that is quite a milestone for our industry as the largest projects today, and certainly the projects that started back in the ’60s, are allmining projects. So for us to cross that threshold in 2015, that actually sees in-itu production outpace mining production, it gives you the indication of where things are headed.
And, in fact, 80 percent of the potential oil sands resource cannot be developed using mining techniques. It must be developed using in-situ techniques. So that’s certainly where the future lies.
39:18 MS. VAN RYAN: For those of you who are – who are not familiar with the acronyms that we’re using, I apologize. There’s an awful lot of industry jargon that I guess we all have a tendency to fall back into, including myself. But Janet, maybe you can explain whatthe in-situ development is in a few words? What we’re talking about when we use the expression “SAGD,” which is S-A-G-D?
39:41 MS. ANNESLEY: Yeah, sure. In-situ is – yeah, it’s one of those engineering terms that’s Latin for “in place.” So it simply differentiates mining from drilling, essentially.
And the different technologies that fall under in-situ are drilling; the SAGD is one of them –steam-assisted gravity drainage. There’s also a number of other technologies that are used. There’s some that are being experimented with.
But at the bottom – the bottom line is that when you drill into the oil sands, the oil does not flow to the surface. So heat or steam or some type of enhanced oil recovery process is needed to actually get it to flow up. So there’s a number of different technologies that are used.
And I think we’re really excited about what other technologies are being experimented with right now.
ExxonMobil, Shell, Conoco – lots of large companies – are trying to find better ways to get the drillable bitumen out of the ground, and certainly do so with less environmental impact and less cost. So if there is an area where we should be watching in the future, given the size of the resource and the money being invested into research and development, certainly, in-situ is it.
40:56 MS. VAN RYAN: Very good.
40:57 SABRINA FANG: This is Sabrina here at API. I think we’d like to wrap up the call and we want to thank everybody for joining us. If you have any other questions about the Keystone XL pipeline, feel free to call the media relations line at 202-682-8114.
41:15 MS. VAN RYAN: Oh, sure. Or, if you prefer, just – I’ll be online; send your questions to me by e-mail and I’ll be happy to get them answered for you. And thank you all for joining us today. I’ll be happy, like I say, to answer any other questions you might have. We’ll be sending out the recording and the transcript probably late Monday, maybe early Tuesday. But you’ll get this information early next week. And thanks,everybody. Have a great weekend in the meantime. (Cross talk.) Bye now.