Oil glut means we’re leaving money on the table – by Peter Tertzakian (Globe and Mail – February 13, 2013)

The Globe and Mail is Canada’s national newspaper with the second largest broadsheet circulation in the country. It has enormous influence on Canada’s political and business elite.

The reality is beginning to set in. Big money is being left on the table. Shortfalls in revenue are affecting Alberta’s budget. The federal government knows there is a problem too. National spreadsheets are starting to show what is likely to happen when expected transfer payments don’t transfer and trade deficits expand. The taxman is going to come up short too, after shaking the half-empty pockets of Canada’s oil and gas industry.

Commodity prices are not what they should be. Our oil and gas is not reaching the highest bidders in the world. Consequently, between what happened last year and what’s expected to happen this year, sales from the largest product-selling business in the land are coming out short about $90-billion.

Selling our various grades of oil at deep discounts to world prices – an average $35 for each of the 3.6 million barrels sold to refineries every day – has been the topic du jour lately, even though the issue has been weighing down financial statements for a couple of years now. Even more concerning, western natural gas is being given away at a fraction of world prices. On prevailing transactions there are little to no economic returns (profit, royalties, taxes) being generated at the wellhead.

Being captive to the oversupplied American market, while unable to access coastal ports to reach higher-paying global customers, means that millions of dollars are being forfeited every day, billions per year. So much money is being sacrificed that it’s hard to comprehend the amounts at a personal level unless you’re Bill Gates, Warren Buffet or a Russian oligarch.

So how much money are we talking about?

The waterfall of money starts with the sale of crude oil and natural gas, where the wellhead meets the cash register. Revenue realized by the industry is the volume of its production – barrels of oil and cubic feet of natural gas – multiplied by the respective prices realized for the various product streams of hydrocarbons. Like coffee and Scotch, not all oil is created equal; there are different grades and blends. In Alberta, the smorgasbord of oil ranges from bitumen, to heavy oil, to premium light oil.

Canada is now the world’s sixth-largest producer of oil at 3.6 million barrels per day (3.6 MMb/day) and fourth-largest producer of natural gas at 13.5 billion cubic feet per day (13.5 Bcf/day). Because of these large volumes, over half of which are exported to the United States, small changes in realized price translate into big changes in dollar revenue.
For the rest of this article, please go to the Globe and Mail website: http://www.theglobeandmail.com/report-on-business/industry-news/energy-and-resources/oil-glut-means-were-leaving-money-on-the-table/article8460594/

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