Canadian Oil Sands. Energy and Economic Security. February 21, Cindy Schild, API Senior Manager Downstream Operations

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1 Canadian Oil Sands Cindy Schild, API Senior Manager Downstream Operations February 21, 2012 Energy and Economic Security

2 Overview Security of Supply Energy Security Economic Security Pipeline Transportation Safety Canadian Oil Sands Corrosion Keystone XL Pipeline Proposal Job Creation National Interest Exports

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4 Canadian Oil Sands Crude oil and petroleum products are global commodities

5 Energy Security Canadian Oil Sands

6 Did you know? Canadian Oil Sands Canada is the US top supplier of imported oil Canada and the US enjoy the world s largest trading relationship More Canadian oil in the US means decreasing reliance on less friendly, unstable oil producing nations

7 Canadian Oil Sands Sources of Crude & Product Supplies

8 The North American heavy crude production Canadian outlook Oil is Sands dominated by the decline of Maya supplies, and the emergence of Canadian production North American heavy oil production comes predominantly from Mexico (through the Maya blend) and Canada (through oil sands) US refineries have built on the basis of supplies from Mexican grades, however given the declining trend, investments are now geared to match the increasing supply from Canada Future of heavy oil production growth in North America will come from Canada s oil sands Source: Wood Mackenzie Analysis Heavy Oils Study 2009 Wood Mackenzie

9 U.S. Demand for W. Canadian Crude Oil: 2010 vs Potential Thousand Barrels per Day Source: CAPP

10 Canadian Oil Sands However Canada s heavy oil production growth depends on access to appropriate refining markets Access to PADD III through Keystone XL depends on presidential permit kbd Western Canada Heavy Crude Oil Disposition ( ) Canada Demand Trans Mountain PADD II PADD IV PADD III* Market Access Shortfall Volumes may flow to other refining centers as pipeline proposals to the west coast of Canada may provide an alternative solution to access constraints of US markets *Considers Keystone-XL s pipeline expansion by 2013 Source: CAPP (2010), Wood Mackenzie Analysis Refining Evaluation Model Wood Mackenzie

11 Canadian Oil Sands Canadian Oil Sands and Conventional Production Source: CAPP

12 US Demand for Canadian Crude Oil (2010) Source: CAPP

13 FILLING AMERICA S GAS TANK Within 15 years Canada & US can provide all our liquid fuel needs Sources of liquid fuel supply: % 12% 12% 45% Oil from rest of world Biofuels Oil from Canada US oil production 12% 16% 72% EIA forecast Potential Sources: EIA; Wood Mackenzie

14 Economic Benefits Canadian Oil Sands

15 Canadian Oil Sands Canadian oil sands development a boon to U.S. economy For every two jobs supported in Canada, one job will be supported in the U.S Canada s oil sands can support 600,000 U.S. jobs by At least 2,400 US companies support oil sands development in Canada and expansion projects in US 45 Florida companies $775 billion dollars added to our GDP over next 25 years.

16 Canadian Oil Sands For every dollar the US spent on imported goods in 2010, this is how much returned through exports: $0.00 $0.10 $0.20 $0.30 $0.40 $0.50 $0.60 $0.70 $0.80 $0.90 $1.00 Canada $0.90 Mexico $0.71 Saudi Arabia $0.37 Venezuela $0.33 OPEC $0.37 European Union $0.75 Japan $0.50 China $0.25

17 Canada s Oil Sands: Partners in the American Economy Canadian Oil Sands 17

18 Pipeline Transportation Canadian Oil Sands

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20 Canadian & U.S. Crude Oil Pipelines & Some Proposals 20

21 Canadian Oil Sands Americans Want More Canadian Oil November 3 rd API National Canadian Oil Survey A lot more 61% A little more 79% About the same amount as it does today A little less 18% 6% 3% 6% A lot less 21

22 Canadian Oil Sands Yes to Canadian Oil & Pipeline Safety November 3 rd API National Canadian Oil Survey Strongly disagree Somewhat Disagree Neither Agree not Disagree Somewhat Agree Strongly Agree Support for Canadian oil & pipelines 11% 5% 6% 8% 36% 44% 80% Safest way to move Canada s oil to the U.S. is by pipeline 4% 7% 11% 33% 40% 11% 73%. 22

23 Pipeline Safety Canadian Oil Sands Pipelines are safest and most efficient way to move crude and refined product overland for long distances DOT s Pipeline and Hazardous Materials Safety Administration regulations for liquids pipelines Design, construction, operation, inspection, maintenance, repair and emergency response

24 Canadian Oil Sands Transporting Canadian Crude Oil sands have been shipped via pipeline for decades Once oil sands crudes have been upgraded for transportation they are just crude oil with characteristics similar to crudes from California, Mexico and Venezuela Canadian crudes pose no more of a threat to U.S. pipelines than any other crude

25 Canadian Oil Sands Oil Sands Crudes are Not More Corrosive Than Other Crude Oils Corrosion experts support the fact: Oil sands crudes do not pose a unique threat to pipelines: Corrosivity of diluted bitumen is largely similar to crude oil, which is considered to be low according to: Dr. Oliver Moghissi is President of NACE International and the Director of the DNV Corrosion and Materials Technology Center There is no indication that pipelines transporting blended crude bitumen, crude oil or synthetic crude oil have an increased risk of internal corrosion issues. According to the Alberta regulator, the Energy Resources & Conservation Board (ERCB)

26 Canadian Oil Sands Dramatic Improvement: Liquids Pipeline Industry Onshore Pipe Spill Record Number of Spills per 1,000 Miles Barrels Released per 1,000 Miles % % '01 '03 '05 '07 '09 3-Year Averages Ending in Year Shown Source: Pipeline Performance Tracking System, a voluntary spill reporting system involving 85% of the U.S. liquids pipeline mileage. Percentage decline from average to average.

27 Keystone XL Pipeline Canadian Oil Sands

28 Canadian Oil Sands Keystone XL Pipeline 1,661 mile pipeline Bring oil sands derived crude from Alberta, Canada to Gulf Coast refineries 25% of capacity for domestic production from Bakken Pick up inventories stored in Cushing

29 Canadian Oil Sands KXL is in our Nation s Interest Stability of US/Canada trading relationship Significant economic benefits Larger, more dynamic pipeline system benefits consumers Canadian crudes are replacing supplies from Venezuela and Mexico where production has declined Gulf coast refiners expected to demand similar volumes of supply If not Canada, just more distant sources KXL to be built to most advanced specifications and Source: CERA 2011 monitored by state of the art technologies

30 Canadian Oil Sands XL: Economic Contribution Largest US shovel-ready infrastructure project Jobs 20,000 construction and manufacturing jobs over project life Thousands additional indirect/induced jobs $7 billion private investment No subsidies

31 Canadian Oil Sands XL 20,000 Jobs Breakdown 17 US segments or spreads 500 workers per = 8,500 jobs 30 pump stations 100 workers per = 3,000 jobs Oversight 1,000 jobs TOTAL = 13,000 Construction Jobs PLUS another 7,000 Manufacturing Jobs

32 A typical union-based pipeline spread/segment for KXL Canadian Oil Sands would employ Americans in the following positions: Keystone XL Jobs per pipeline spread/segment Quality Control 16 Laborer Premium 5 Purchasing Agent 2 Teamster semi 24 Environmental Coordinator 1 Welding Foreman 2 Operator 152 Teamster regular 23 R.O.W. Coordinator 1 Welder Premium 29 Oiler 28 Mechanic 16 Safety Coordinator 4 Welder backend 16 Straw Boss 27 Security 2 Engineer 1 Journeyman 8 Laborer 111 Timekeeper/clerk 1 Foreman 24 Graded Helper 9 Project Manager 1 Superintendent 2 Office Manager 2 Welder Helper 66 Assistant Superintendent 2 TOTAL: 561

33 Exports Canadian Oil Sands

34 Canadian Oil Sands Exports: Add value to Our Economy Crude oil is a global commodity as are finished products U.S. is now a net exporter of finished products U.S. doesn t import crude just to then turn around and export it The primary export market for our refined petroleum products is Mexico. Mexico exports oil to us, we refine it (adding significant value), and export some of it back to them. This creates and retains high-paying U.S. jobs, more U.S. tax revenue, and boosts the U.S economy.

35 Canadian Oil Sands Exports: Add value to Our Economy Exportation of refined product is part of global trade to balance supplies. The vast majority (>90%) of on-road motor fuel refined in the U.S. is for use in the U.S. Exports consist primarily of heavier products that are not in demand in the U.S. diesel, resid fuel oil, petroleum coke. Having a stable, secure source of crude oil enhances U.S. energy security regardless of how much may ultimately be exported as product.

36 KXL and Exports Canadian Oil Sands U.S. refineries need heavy crude oil Major suppliers of heavy crude to U.S. include: Mexico, Venezuela, and Canada Imports from Venezuela and Mexico are declining Crude imports from Canada increased nearly 50% since 2000 EIA U.S. Gulf coast refineries are natural customers for oil sands crude Because of this, EIA concludes there would be no economic incentive to ship Canadian oil sands [crude] to Asia via Port Arthur.

37 Canadian Oil Sands For more information: API Oil Sands Web Page API Keystone XL Web Page

38 Canadian Oil Sands Any Questions? Cindy Schild

39 Canadian Oil Sands Foreign Trade Zones Claim: FTZs allow oil sands crude transported through KXL to be exported w/o paying U.S. taxes. The Facts: FTZs are areas where goods may be imported for storage, assembly, manufacturing or processing w/o being immediately subject to customs duties. If the goods enter the U.S. stream of commerce, custom duties would apply. If, on the other hand, the goods were exported, then custom duties would not.

40 Canadian Oil Sands Foreign Trade Zones An example: Crude oil from Canada and Venezuela are imported into a FTZ, refined, and exported. Both crude oils would face the same customs duties. In both cases, refiners would pay the same income tax from sales irrespective of where the crude came from and regardless of whether or not the crude is exported or consumed in the U.S. The FTZ status of the Keystone XL terminus has no impact on the U.S. tax revenue from Canadian oil sands crude imports or exports.

41 Advertising Canadian Oil Sands

42 Production, kbd Wood Mackenzie Canadian Oil Sands thus additional Canadian supplies from oil sands can help meet domestic energy security goals US-Canada Crude Production Profile ( ) 7,000 6,000 5,000 4,000 3,000 US X-Light US Light* US Medium US Heavy Canada Conventional Light Canada Conventional Medium Canada Conventional Heavy Sour Oil Sands Synthetic Oil Sands Bitumen 2,000 1,000 Canadian oil sands production annual growth rate ~ 7% 0 Oil sands has a major part to play supporting future US Energy Security

43 Number of Releases Canadian Oil Sands Reduction in releases along the ROW reflects diverse strategies 132 Corrosion Third Party Equipment 3-year average ending: Pipe Matl/Seam % -66% -50% -30% -45% -40% 300% Other Operator Error Source: Pipeline Performance Tracking System, a voluntary spill reporting system involving 85% of the U.S. liquids pipeline mileage 1 Natural Forces 4