WCS (BITUMEN) PRICE AS % OF WTI

100%

Bursting rds fo Premier Red bble Bitumen Bu

The Government of Alberta is playing games with numbers, using a temporary price differential between heavy bitumen oil and lighter oil to deceptively claim that Alberta must cut spending. Its time to pop the bitumen bubble. The term bitumen bubble is a misnomer. The name implies irrational inflation in the price of bitumen. But what was happening in the last quarter of 2012 is the reverse of a bubble its a temporary depression in the price of bitumen, measured as Western Canada Select (WCS) compared with the North American benchmark for oil prices, West Texas Intermediate (WTI). This has been around for a long time, and I think the Alberta Premier is using this as a way to plant the seed for spending cuts in the budget coming up for Alberta.
Preet Banerjee, Globe and Mail finance columnist and blogger

90%

80%

70%

60%

50%

Sept. 2006

Sept. 2009

Sept. 2008

Sept. 2005

Sept. 2007

Sept. 2010

Sept. 2012

May 2006

May 2009

May 2008

Jan. 2006

Jan. 2009

May 2005

Jan. 2008

40%
Jan. 2005

May 2007

Jan. 2007

Sept. 2011

May 2010

Jan. 2010

May 2012

little as US$22/Bbl by June 2013, and only US$13.00/Bbl by the end of 20131. A PHONY FISCAL CRISIS Premier Redford appears to be using a temporary price anomaly to create a financial panic justifying unnecessary, long-term cuts to public services. The reality is oilsands royalties are set to increase dramatically in the next 5 years, due to increased production and mature projects switching to higher royalty rates. The Canadian Association of Petroleum Producers and Canadian Energy Research Institute forecast bitumen royalties of $10 billion or more by 2016, more than double the current year, and roughly equal to all current resource revenue combined.

This long-term royalty outlook was confirmed by the Government at the recent economic summit. AUPE believes current budget decisions should not be based on a false panic over revenues. Its particularly the Albertan Government thats using this as a bit of window dressing around some mismanagement of their finances, blaming it for deficits
Amanda Lang, CBC Senior Business Correspondent, co-host Lang & OLeary Exchange
1 Baytex Energy Corp., Q4 2012 Heavy Oil Pricing Update, January 11, 2013; PIRA, North American Midcontinent Oil Forecast, January 7, 2013.

There has always been a differential between the price of WCS (bitumen with diluents) and WTI (light oil). In December 2012 there was a substantial difference, averaging approximately US$30 per barrel, compared to $17 for all of 2011. This large, but fleeting gap is not out of the ordinary. As recently as Oct 2007, there was an average price differential of US$30. The other major reason we are hearing so much about the bitumen bubble is that it is being used as a smoke screen by the Government of Alberta to cover up its failure to better manage the volatile revenue problems it has always faced. Many analysts predict the price differential between bitumen and light crude is going to close in the coming months. Both Baytex and the PIRA Energy Group believe heavy differentials will begin to tighten to as

PROJECTED ALBERTA BITUMEN ROYALTIES (MILLIONS)

$25,000

$20,000

$15,000

$10,000

$,5000

2009

2008

Source: Canadian Energy Research Institute

2020

2007

2010

2014

2016

2019

2018

2013

2015

2012

2017

2011

Jan. 2013

Jan. 2012

May 2011

Jan. 2011