Crude Oil Forecast, Markets and Pipeline Expansions

Appendix D-4: Exhibit A-37: Canadian Association of Petroleum Producers Report, Crude Oil Forecnst, Markets nlzd Pipeliize Expaizsions, Jt~i~e2007

REPORT Crude Oil Forecast, Markets and Pipeline Expansions

June 2007 Background

The Canadian Association of Petroleum Producers (CAPP) represents 150 producer member companies that explore for, develop and produce natural gas, natural gas liquids, crude oil, oil sands, and elemental sulphur throughout Canada. CAPP member companies produce more than 95 percent of Canada’s natural gas and crude oil. CAPP also has 130 associate members that provide a wide range of services that support the upstream crude oil and natural gas industry. Together, these members and associate members are an important part of a $100 billion-a-year national industry that affects the livelihoods of more than half a million Canadians.

Disclaimer

This publication was prepared by the Canadian Association of Petroleum Producers (CAPP). While it is believed that the information contained herein is accurate under the conditions and subject to the limitations set out, CAPP does not guarantee its accuracy. The use of this report or any information contained will be at the user’s sole risk, regardless of any fault or negligence of CAPP.

2100, 350 – 7th Ave. S.W. 403, 235 Water Street Calgary, Alberta St. John’s, Newfoundland Canada T2P 3N9 Canada A1C 1B6 Tel (403) 267-1100 Tel (709) 724-4200 Fax (403) 261-4622 Fax (709) 724-4225 Email: [email protected] Website: www.capp.ca

Canadian Association of Petroleum Producers Crude Oil Forecast, Markets and Pipeline Expansions

1 EXECUTIVE SUMMARY...... 1

2 CRUDE OIL PRODUCTION AND SUPPLY FORECAST ...... 2 2.1 Introduction ...... 2 2.1.1 Canadian Crude Oil Production ...... 2 2.1.2 Western Canadian Crude Oil Production...... 3 2.1.2.1 Oil Sands...... 3 2.1.2.2 Conventional Crude Oil Production...... 4 2.1.3 Western Canadian Crude Oil Supply...... 5 2.2 Summary...... 6

3 CRUDE OIL MARKETS...... 6 3.1 Introduction ...... 6 3.2 Canada ...... 7 3.2.1 Western Canada ...... 7 3.2.2 Ontario ...... 8 3.2.3 Québec ...... 8 3.3 United States...... 9 3.3.1 PADD I ...... 9 3.3.2 PADD II...... 10 3.3.2.1 Northern PADD II...... 10 3.3.2.2 Eastern PADD II ...... 11 3.3.2.3 Southern PADD II...... 11 3.3.3 PADD III ...... 11 3.3.4 PADD IV ...... 12 3.3.5 PADD V...... 13 3.3.5.1 Washington ...... 13 3.3.5.2 California ...... 14 3.4 Asia...... 15 3.5 Summary...... 15

4 CRUDE OIL SUPPLY FORECAST AND MARKET DEMAND...... 15 4.1 Light Crude Oil Supply versus Market Demand...... 16 4.2 Heavy Crude Oil Supply versus Market Demand...... 16 4.3 Western Canadian Crude Oil Supply versus Market Demand...... 17

5 CRUDE OIL PIPELINES...... 17 5.1 Major Crude Oil Pipelines ...... 17 5.2 Existing Crude Oil Pipelines ...... 17 5.2.1 Enbridge Pipelines ...... 18 5.2.2 Kinder Morgan (Trans Mountain) Pipeline...... 18 5.2.3 Kinder Morgan Express-Platte Pipelines ...... 18 5.2.4 Enbridge Spearhead ...... 19 5.2.5 Mustang Pipeline ...... 19 5.2.6 ExxonMobil Pegasus ...... 19 5.3 Crude Oil Supply Transportation Requirements ...... 19 5.4 2007-2010 Crude Oil Pipeline Expansions/Proposals from Western Canada...... 20 5.4.1 Kinder Morgan TMX 1...... 21

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5.4.2 Enbridge Southern Access Expansion/Extension ...... 21 5.4.3 Enbridge Light Sour Line ...... 21 5.4.4 TransCanada Keystone ...... 21 5.4.5 Enbridge Line 4 Extension...... 22 5.4.6 Enbridge Clipper...... 22 5.4.7 Enbridge Line 5 Expansion...... 22 5.4.8 Enbridge Line 6B Expansion...... 22 5.4.9 Enbridge Line 6C...... 22 5.4.10 Enbridge Line 14 Extension...... 23 5.4.11 TransCanada Keystone Heartland Extension...... 23 5.5 2007-2010 Crude Oil Pipeline Proposals in the United States ...... 23 5.5.1 BP Pipelines (North America) ...... 23 5.5.2 Minnesota Pipeline ...... 23 5.5.3 Enbridge North Dakota...... 24 5.5.4 ExxonMobil Pipeline ...... 24 5.5.5 Enbridge Spearhead ...... 24 5.5.6 Enbridge Chicago to Lima ...... 24 5.6 Post 2011 Crude Oil Pipeline Proposals from Western Canada...... 24 5.6.1 Altex Energy Ltd...... 25 5.6.2 Enbridge Gateway...... 25 5.6.3 Kinder Morgan Trans Mountain TMX 2 and TMX 3...... 25 5.6.4 Kinder Morgan Express/Platte Pipeline Systems...... 25 5.6.5 Kinder Morgan United States Gulf Coast (USGC)...... 25 5.6.6 TransCanada California ...... 26 5.6.7 Enbridge Montreal-to-Sarnia (Line 9) Reversal...... 26 5.6.8 Enbridge Eastern PADD I Access ...... 26 5.6.9 Sunoco Pipeline ...... 26 5.6.10 Enbridge Spearhead Looping...... 26 5.6.11 TransCanada Keystone Cushing Extension ...... 26 5.7 Post 2010 Crude Oil Pipeline Proposals from Patoka, Illinois and Cushing, Oklahoma to the USGC...... 27 5.7.1 ExxonMobil Pipeline – Enbridge Pipelines Joint Initiative ...... 27 5.7.2 TEPPCO ...... 27 5.7.3 TransCanada Gulf Coast...... 27 5.8 Diluent Pipeline Proposals...... 28 5.8.1 Enbridge Southern Lights ...... 28 5.8.2 Enbridge Gateway Diluent...... 28 5.8.3 BP Pipelines (North America) ...... 28

6 CONCLUSIONS ...... 29

7 APPENDICES...... 30 7.1 CAPP Canadian Crude Oil Production Forecast 2007-2020 Pipeline Planning Case...... 31 7.2 CAPP Canadian Crude Oil Production Forecast 2007-2020 Moderate Growth Case...... 32 7.3 CAPP Canadian Crude Oil Supply Forecast 2007-2020 Pipeline Planning Case...... 33 7.4 CAPP Canadian Crude Oil Supply Forecast 2007-2020 Moderate Growth Case...... 34 7.5 Historical Production...... 35 7.6 Oil Sands Projects (includes merchant upgraders)...... 36 7.7 Crude Oil Pipelines and Refineries ...... 41 7.8 North American Crude Oil Pipeline Proposals...... 42

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1 EXECUTIVE SUMMARY

The Canadian Association of Petroleum Producers (CAPP) prepares an annual long-term forecast of Canadian crude oil production and supply. This year, CAPP’s outlook also looks at the potential demand in various markets, and the proposed pipelines to these markets. CAPP has prepared two production and supply cases – the Pipeline Planning Case and the Moderate Growth Case. In the Pipeline Planning Case, western Canadian crude oil supply is projected to increase from 2.4 million b/d in 2006 to almost 5.3 million b/d in 2020 while in the Moderate Growth Case, supply rises to about 4.6 million b/d. The primary reason for the difference is that in situ projects ramp up at a more gradual pace in the Moderate Growth Case. In both Cases, however, oil sands growth is significant. Due to the maturity of the basin, conventional crude oil supply in western Canada continues to decline.

The expected growth in western Canadian crude oil supply will require additional pipeline capacity to meet demand from existing and new markets. To assess this requirement, CAPP surveyed refineries in traditional and some potential new markets. The survey results showed that demand for western Canadian crude oil by Canadian refineries is expected to rise from 765,000 b/d in 2006 to almost 1.1 million b/d in 2015, a 44 percent increase. As expected, the majority of the growth will be heavy crude oil and light synthetic. Over the same period, United States total refinery demand for western Canadian crude oil is projected to increase from about 1.6 million b/d to almost 3.1 million b/d, a 100 percent growth. Demand for heavy crude oil is by far the largest of the crude types.

The refinery survey results indicate that traditional markets (i.e. western Canada, Ontario, upper PADD II, PADD IV and Washington State) in Canada and the United States will continue to process large volumes of western Canadian crude oil. There is, however, potential for expansions into new markets such as Québec, eastern PADD I, southern and eastern PADD II, PADD III, California and Asia.

2006 Western Canadian Crude Oil Supply, Market 2015 Western Canadian Crude Oil Supply, Market Demand and Refining Capacity Demand and Refining Capacity (thousand barrels per day) (thousand barrels per day) Western Western Canadian Supply Canadian Supply 2,351 4,400

Western Canada Ontario Western Canada Ontario 560 / 610 205 / 383 624 / 610 470 / 383

Washington Washington PADD IV PADD IV 97 / 625 170 / 625 PADD II PADD II Eastern Eastern PADD I PADD I PADD II PADD II 63 / 1,630 California ?? / 1,630 California Northern 84 / 735 Northern 670 / 735 7 / 2,000 ?? / 2,000 Rockies PADD II Rockies PADD II 1,008 / 1,900 Southern 1,820 / 1,900 PADD V 270 / 600 Southern PADD V 315 / 600 PADD II PADD II 46 / 970 75 / 970

PADD I PADD I PADD III PADD III

USGC USGC Market Market 30 / 7,500 ?? / 7,500 2006 Demand / 2006 Capacity 2015 Demand / 2006 Capacity

PADD: Petroleum Administration for Defense District PADD: Petroleum Administration for Defense District By 2011, western Canadian crude oil supply rises by almost 1 million b/d in the Pipeline Planning Case, and in the same year, it is expected that almost 1.3 million b/d of additional crude oil pipeline capacity will be available from western Canada. These crude

- 1 - Canadian Association of Petroleum Producers Crude Oil Forecast, Markets and Pipeline Expansions oil pipeline expansions will provide additional access to the core markets (e.g. Ontario, PADD II). Looking out past 2011, there are numerous crude oil pipeline proposals from western Canada to the U.S. Midwest, the United States Gulf Coast, the west coast of British Columbia and to eastern PADD I. In light of the expected growth in oil sands supply after 2011, industry will need to decide in the near future on the numerous crude oil pipeline options. The lead time to receive regulatory approvals and construct a new crude oil pipeline is at least four years.

2 CRUDE OIL PRODUCTION AND SUPPLY FORECAST

2.1 Introduction

The CAPP forecast has been developed to Oil Sands & Conventional Production provide industry with a long-term outlook Pipeline Planning Case of production trends and the types of crude 6 000 oil that could be available to the market. In Actual Forecast

East Coast addition, the CAPP forecast is used to 5 000 2006 Forecast determine crude oil pipeline capacity 4 000 requirements to handle the expected In Situ 3 000 growth in western Canadian crude oil 2 000 supply. CAPP has also prepared a forecast Mining of offshore eastern Canadian crude oil Thousand Barrels Per Day 1 000 Conventional Heavy Conventional Light production. 0 Pentanes 2002 2004 2006 2008 2010 2012 2014 2016 2018 2020

The forecast is based on the results of a survey of oil sands producers that was conducted in early 2007. CAPP has subsequently prepared two cases employing different constraints. The first case which is more aggressive is called the “Pipeline Planning Case” while the other is the “Moderate Growth Case”. It should be noted that the surveys were completed by crude oil producers prior to the Federal Government’s decision to eliminate the Accelerated Capital Cost Allowance, commencement of the Alberta Royalty review and announced Federal and Provincial climate change initiatives. These factors could conceivably result in reducing the crude oil production forecast.

2.1.1 Canadian Crude Oil Production Canadian crude oil production is Oil Sands & Conventional Production comprised of western Canadian, which Moderate Growth Case includes crude oil from the oil sands and 6 000 conventional resources, as well as offshore Actual Forecast production from the east coast of Canada. 5 000 2006 Forecast East Coast crude oil production is forecast 4 000 East Coast In Situ to increase this year, however, in the long 3 000 term, a gradual decline is expected. In 2 000 2006, East Coast offshore crude oil Mining Thousand Barrels Per Day 1 000 Conventional Heavy production of 305,000 b/d approximated Conventional Light 0 Pentanes 12 percent of total Canadian crude oil 2002 2004 2006 2008 2010 2012 2014 2016 2018 2020

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production of 2.6 million b/d. Western Canadian crude oil production is projected to grow significantly over the forecast period due to the oil sands.

In the Pipeline Planning Case, Canadian crude oil production is forecast to grow from 2.6 million b/d in 2006 to about 4.6 million b/d in 2015 and to over 5.3 million b/d in 2020. The growth in the forecast is attributable to increasing production from the oil sands.

2.1.2 Western Canadian Crude Oil Production Western Canadian crude oil production comes from conventional resources and the oil sands. Until recently, conventional crude oil production exceeded oil sands production; however, in 2006 oil sands production reached over 1.1 million b/d and surpassed conventional production for the first time. Total western Canadian crude oil production in 2006 was over 2.3 million b/d and is projected to increase to about 4.6 million b/d in 2020 in the Moderate Growth Case and to almost 5.2 million b/d in the Pipeline Planning Case.

Million Barrels per Day 2006 2010 2015 2020 Pipeline Planning Case 2.3 3.1 4.4 5.2 Moderate Growth Case 2.3 3.0 3.9 4.6

2.1.2.1 Oil Sands Bitumen is primarily extracted from the

oil sands using either in situ or mining Oil Sands in Three Deposits techniques. In areas where the oil is located near the surface, mining is the

most efficient method; however, for oil Athabasca that is located further below the surface, in Fort McMurray Peace situ production techniques such as Steam River Assisted Gravity Drainage (SAGD) and Cold Lake Edmonton Cyclic Steam Simulation (CSS) are employed. Mining currently accounts for Calgary more than half of the total oil sands production. The three main oil sands deposits are located in the Peace River, Athabasca and Cold Lake areas.

In the Pipeline Planning Case, output from in situ and mining projects is projected to increase four-fold by 2020. This Case assumes that the majority of the oil sands projects that have been proposed will proceed without significant delays to scheduled in service dates, and that the capacity of the projects will be achieved. The in situ and mining production forecasts are based on the results of the CAPP oil sands producer survey, however, adjustments to the survey results have been made to reflect historical performance trends of oil sands projects following start up. Historically, in situ projects require some time to ramp up to capacity while new mining projects typically require some fine tuning before capacity is maintained on a consistent basis.

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Current oil sands production makes up roughly half of western Canada’s total crude oil production, and is expected to grow from roughly 1.1 million b/d in 2006 to approximately 3.4 million b/d in 2015 and to about 4.4 million b/d in 2020 in the Pipeline Planning Case. Of the 1.1 million b/d of oil sands production in 2006 over 600,000 b/d was mined. Currently, the majority of Oil Sands & Conventional Production mined bitumen is upgraded into synthetic Pipeline Planning Case crude oil as part of an overall integrated 6 000 operation. This trend of upgrading mined Actual Forecast bitumen is expected to continue 5 000 2006 Forecast throughout the forecast period. 4 000 In Situ

3 000

The majority of in situ bitumen production 2 000 is currently not upgraded prior Mining Thousand Barrels Per Barrels Day Thousand 1 000 Conventional Heavy transporting it to market. This trend, Conventional Light 0 Pentanes however, will change as more in situ 2002 2004 2006 2008 2010 2012 2014 2016 2018 2020 production will be coupled with upgrading operations.

The integrated upgrading projects will be augmented by merchant upgrading projects of which there are several in various stages of planning and development. CAPP has included the contribution of merchant upgrading in its supply forecast which is discussed in the Western Canadian Crude Oil Supply section.

The Moderate Growth Case is based on the assumption that oil sands projects will be developed and brought into service at a more gradual pace. The majority of oil sands projects, particularly in situ, are executed in multiple phases and this Case projects that the timing between phases will be greater than the Pipeline Planning Case. There are many factors that could lead to more moderate growth in oil sands production, such as, cost increases and availability of labour and materials.

2.1.2.2 Conventional Crude Oil Production Conventional crude oil production in western Canada has been declining gradually since the late 1990s as a result of the maturity of the basin. By 2020, total conventional crude oil production declines to about 670,000 b/d, almost 35 percent less than its current level of over 1 million b/d. Recent trends indicate that the year-over-year decline rate for conventional crude oil production has slowed somewhat due to high crude oil prices and in some areas, such as Saskatchewan and Manitoba, production is increasing modestly.

Last year, CAPP’s conventional crude oil production forecast reflected a more aggressive decline. In 2006, however, Saskatchewan drilling completions increased almost 14 percent while Manitoba rose 75 percent. In Manitoba, the Sinclair field, newly designated in 2005, accounted for 20 percent of that province’s crude oil production. It is the first major discovery in Manitoba in many years.

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2.1.3 Western Canadian Crude Oil Supply Heavy crude oil and bitumen must be blended with diluent to meet pipeline specifications for density and viscosity. Currently, the main source of diluent is natural gas condensates that are produced in western Canada. In the future, this diluent supply will not meet the blending needs of growing bitumen production. As a result, producers are considering imports of condensate by pipeline as well as the use of light synthetic crude oil. The blend of bitumen and diluent is referred to as “DilBit” while blending bitumen and synthetic crude oil is known as “SynBit”. The DilBit blend is typically made up of three parts bitumen and one part condensate. SynBit blend is comprised of roughly fifty percent synthetic and fifty percent bitumen.

DilBit blend continues to make up the majority of the blended heavy crude oil. As noted above, locally produced condensate is no longer sufficient and, in fact, producers are currently importing about 25,000 b/d of diluent into Alberta by rail. In addition to these railed imports, Enbridge is planning to construct a diluent pipeline from Chicago to Alberta. It is expected to be in service in the second half of 2010 and will provide the potential to supply up to 180,000 b/d of diluent to western Canada.

In the Pipeline Planning Case, supply of Western Canadian Crude Oil Supply light synthetic crude oil is forecast to grow Pipeline Planning Case from about 600,000 b/d in 2006 to 1.7 6 000 million b/d by 2015 and 2.3 million by Actual Forecast 2020. It is worth noting that a significant 5 000 SynBit

amount of synthetic crude oil is forecast to 4 000 be blended as part of the SynBit supply. DilBit & Heavy 3 000 Synthetic The supply of synthetic crude oil could 2 000 increase in the event that additional Light Synthetic

Thousand Barrels Per Day 1 000 amounts of diluent are imported which Conventional Heavy

Conventional Light results in less SynBit available to the 0 market. The amount of synthetic crude oil 2002 2004 2006 2008 2010 2012 2014 2016 2018 2020 available to the market also includes heavy synthetic. However, heavy synthetic is included as part of heavy crude oil supply with the DilBit blend.

Heavy crude oil supply from the oil sands, including DilBit, SynBit and heavy synthetic grows from 800,000 b/d in 2006 to 2.0 million b/d in 2015 and up to almost 2.5 million b/d in 2020. It is assumed that growing bitumen production in this Case will require additional diluent imports by pipeline in 2017 which will result in an increase in DilBit supply.

In the Moderate Growth Case, there is less production of synthetic crude oil and bitumen resulting in lower blended heavy crude oil than the Pipeline Planning Case. In the Moderate Growth Case, light synthetic crude oil supply is projected to grow from about 600,000 b/d in 2006 to almost 2.1 million b/d in 2020.

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In this Case, there is less demand for Western Canadian Crude Oil Supply imported diluent and, therefore, less Moderate Growth Case supply of DilBit. The Moderate Growth 6 000 Case and the Pipeline Planning Case both Actual Forecast include growing amounts of SynBit and 5 000 DilBit supply. Heavy crude oil supply 4 000 SynBit

DilBit & Heavy from the oil sands in the Moderate 3 000 Synthetic

Growth Case is forecasted to increase 2 000 from 800,000 b/d in 2006 to 1.7 million Light Synthetic Thousand Barrels Per Day 1 000 b/d in 2015 and to almost 2.0 million b/d Conventional Heavy Conventional Light 0 in 2020. In 2020, this is about 500,000 b/d 2002 2004 2006 2008 2010 2012 2014 2016 2018 2020 less than the Pipeline Planning Case.

Million Barrels per Day 2006 2010 2015 2020 Pipeline Planning Case 2.4 3.2 4.4 5.3 Moderate Growth Case 2.4 3.0 4.0 4.6

2.2 Summary

In both Cases, CAPP projects significant growth in oil sands supply. In the Pipeline Planning Case, oil sands supply grows by 3.3 million b/d in comparison to an increase of 2.6 million in the Moderate Growth Case. On the other hand, conventional crude oil supply falls by 400,000 b/d in both Cases. East Coast crude oil production is forecast to increase this year, however, in the long term, a gradual decline is expected.

In summary, western Canadian crude oil supply will increase from 2.4 million b/d in 2006 to almost 5.3 million b/d in 2020 in the Pipeline Planning Case while in the Moderate Growth Case supply rises to about 4.6 million b/d. The primary reason for the difference is that in situ projects ramp up at a more gradual pace.

3 CRUDE OIL MARKETS

3.1 Introduction In previous reports, CAPP provided a long-term forecast of western Canadian crude oil production and supply. CAPP is of the view that it is necessary to review the market potential to process the expected growth in oil sands supply. This assessment will, as well, assist industry in the development of adequate pipeline infrastructure. In this context, CAPP surveyed the majority of North American refineries (western Canada, Ontario, PADDs II and IV, and Washington) to obtain information on their ability or plans to process increasing volumes of western Canadian crude oil and, in particular, oil sands to 2015. The data was aggregated and analyzed, and are discussed in this section. CAPP did not put any constraints on the data submitted by refiners nor did it prepare any alternate cases. CAPP did not survey refineries located in Québec, eastern PADD I, PADD III or California, however, discussions with these refiners indicate that a significant potential exists, and this is supported by numerous pipeline proposals.

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The CAPP refinery survey assessed four types of western Canadian crude oil. They are: 1. Conventional Light Sweet (30-40 API, less than 0.5%S) including condensates and pentanes plus; 2. Heavy (less than 27 API) and includes synthetic sour, DilBit, SynBit and DilSynBit); 3. Conventional Medium Sour (greater than 27 API and 0.5%S); and 4. Light Sweet Synthetic.

In 2006, available supply of crude oil from western Canada was over 2.3 million Forecast Canadian Refinery Receipts of Western Canadian Crude Oil b/d. Domestic demand for western

Total Refining Capacity 993 thousand bpd Canadian crude oil was approximately 1 200 765,000 b/d and the remaining supply of 1 000 almost 1.6 million or 68 percent was 800 exported. The primary markets for 600 400

western Canadian crude oil are: British bpd Thousand Columbia; the Prairie Provinces; Ontario; 200 0 northern PADD II (i.e. Chicago, Twin 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 Cities and Toledo); PADD IV; and Conv Light Sweet Conv Med Sour Heavy Light Synthetic Washington State. With the reversal of the Enbridge Spearhead pipeline and the ExxonMobil (Pegasus) pipeline in early 2006, western Canadian crude oil is delivered to the Cushing, Oklahoma hub and the United States Gulf Coast, respectively.

3.2 Canada Canadian refineries that have access to western Canadian crude oil have a refining capacity of almost 1 million b/d. In 2006, these refineries processed about 765,000 b/d of western Canadian crude oil. The survey results project that this will increase to approximately 945,000 b/d in 2010 and with refinery expansions to almost 1.1 million b/d in 2013, a 40 percent increase from 2006.

3.2.1 Western Canada There are seven refineries located in Western Canada western Canada with a total refining Forecast Western Canadian Crude Oil Receipts capacity of about 610,000 b/d, and they Total Refining Capacity 610 thousand bpd process exclusively western Canadian 700 crude oil. In 2006, they refined about 600 500

560,000 b/d and this, according to the 400 survey, is expected to increase to 578,000 300 200 b/d in 2007, and remain relatively flat bpd Thousand 100 through 2010. Subsequently, receipts are 0

expected to rise to 624,000 b/d and remain 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 at this level through 2015. Conv Light Sweet Conv Med Sour Heavy Light Synthetic

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Receipts of conventional light sweet crude oil are expected to fall, in part, due to the maturity of the basin as well as, for example, a conversion of Petro-Canada’s Edmonton refinery in 2008 to process 100 percent oil sands feedstocks. As a result, receipts of heavy and light synthetic crude oils are expected to increase throughout the forecast period. Consumers’ Co-operatives refinery is currently assessing a 30,000 b/d expansion of its Regina refinery that could start up in 2011.

There are some proposals to upgrade bitumen at the mining projects as well as a number of merchant upgrader proposals located in Fort Saskatchewan, Alberta.

3.2.2 Ontario There are four refineries (excludes Nova Chemicals’ Sarnia facility) located in Ontario with a total refining capacity of almost 383,000 b/d. These refineries process both western Canadian crude oil as well as crude oil (imports and eastern Canadian crude oil production) that is received by tankers from the Portland-to-Montreal pipeline and, subsequently, the Enbridge Montreal-to-Sarnia pipeline (Line 9). Ontario refineries have, for a number of years, based their feedstock sourcing on both availability Ontario Forecast Western Canadian Crude Oil Receipts and pricing.

Total Refining Capacity 383 thousand bpd 600

In 2006, Ontario refineries processed over 500 350,000 b/d of which almost 60 percent or 400 about 205,000 b/d was from western 300 200

Canada. Receipts of western Canadian bpd Thousand crude oil in 2007 are projected to rise to 100 349,000 b/d or 90 percent of refining 0 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 capacity, and should remain at this level Conv Light Sweet Conv Med Sour Heavy Light Synthetic through 2012. This will, however, depend on the economics of imported crude oil in comparison to equivalent quality western Canadian crude oil. Subsequently, western Canadian crude oil receipts increase to 471,000 b/d. There are two reasons for this potential increase in 2013. First, Shell Canada is exploring a new 200,000 b/d refinery in Sarnia and, second, it appears that the Enbridge Line 9 would either be shutdown or possibly re-reversed, in fact, this could occur sooner than 2013. Enbridge forecasted in its application to the National Energy Board in April 2007 for tolls and tariffs that it expects a steady decline in throughput on Line 9 to 2012. It subsequently expects no throughput on Line 9.

3.2.3 Québec The two refineries located in Montreal have a total refining capacity of 235,000 b/d, and a refinery in Québec City has a capacity of 215,000 b/d. The Montreal refineries process crude oil, eastern Canadian and foreign, that is received from the Portland-to-Montreal pipeline. If Enbridge’s Line 9 pipeline is reversed, the Montreal market would provide western Canadian crude oil producers with another outlet for their production.

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3.3 United States The United States with a refining capacity Forecast Western Canadian Crude Oil of over 17 million b/d is Canada’s largest Exports to the U.S. (includes Western PADD I, market for crude oil exports and, in 2006, PADD II, PADD IV and Washington)

Total Refining Capacity 4,867 thousand bpd Canada was the largest exporter of crude 3 500 oil supplying almost 12 percent of United 3 000 States requirements, ahead of both Mexico 2 500 2 000 and Saudi Arabia. In 2006, Canada 1 500

1 000 exported almost 1.6 million b/d and the bpd Thousand survey results show that this will grow to 500 0 2.4 million b/d in 2011 and to over 3.1 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 million b/d in 2015. The major growth is Conv Light Sweet Conv Med Sour Heavy Light Synthetic expected to be conventional medium sour and heavy crude oils. The rise in crude oil exports to the United States, in CAPP’s view, reflects various drivers, such as; Canada’s proximity to the United States; geopolitical stability; and security of supply for Canada and the United States.

3.3.1 PADD I PADD I is located along the east coast of the United States with refineries in PADD I – Imported Crude Oil 2002-2006 Delaware, New Jersey, Pennsylvania and

Total Refining Capacity 1,627 thousand bpd West Virginia. There are 12 refineries 1 800 1 600 with a total capacity of 1.6 million b/d. In 1 400 2006, refinery runs in this market 1 200 1 000 consisted of 61 percent light sweet crude 800 600 oil, 22 percent heavy crude oil and 17 bpd Thousand 400 percent medium sour crude oil. 200 0 2002 2003 2004 2005 2006 In 2006, 14 percent of refinery runs in Light Sweet Light/Medium Sour Heavy

PADD I were Canadian sourced crude oil. Source: EIA Receipts of Canadian crude oil, including offshore East Coast, were 208,000 b/d PADD I with just over 30 percent or 63,000 b/d Forecast Western Canadian Crude Oil Receipts from western Canada. The bulk of these Total Refining Capacity 1,627 thousand bpd 200 receipts were heavy crude oil delivered to 180 160 the United refinery in Warren, 140 120 Pennsylvania. 100 80 Thousand bpd Thousand 60 Without additional access to this market, 40 20 western Canadian crude oil deliveries are 0 expected to remain flat to 2015. PADD I 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 Conv Light Sweet Conv Med Sour Heavy Light Synthetic refineries have a huge potential to process western Canadian crude oil by displacing

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3.3.2 PADD II PADD II, located in the U.S. Midwest, is PADD II the largest market for western Canadian Forecast Western Canadian Crude Oil Receipts crude oil and it has a refining capacity of Total Refining Capacity 3,583 thousand bpd almost 3.6 million b/d. In 2006, PADD II 3 500 3 000 processed over 1.1 million b/d of western 2 500

Canadian crude oil and this is projected to 2 000 grow to over 2.5 million b/d in 2015, an 1 500 increase of about 125 percent. The bpd Thousand 1 000 500 forecasted receipts in 2015 equal about 70 0

percent of current refining capacity. 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 Conv Light Sweet Conv Med Sour Heavy Light Synthetic For purposes of this report, PADD II has been divided into north, east and south.

3.3.2.1 Northern PADD II Northern PADD II has 12 refineries located in Illinois, Indiana, Minnesota, North Dakota, Ohio (Toledo) and Wisconsin and they run predominantly heavy crude oil which reflects the complexity of these refineries. Total refining capacity in northern PADD II is 1.9 million b/d, and the Illinois/Indiana area makes up 60 percent of the region’s refining capacity followed by Minnesota with 19 percent.

In 2006, imports into northern PADD II PADD II (North) were 1.1 million b/d and western Forecast Western Canadian Crude Oil Receipts Canadian crude oil accounted for 94 Total Refining Capacity 1,883 thousand bpd percent (1 million b/d) of those imports. 2 000 1 800 Imports of western Canadian crude oil are 1 600 1 400 expected to grow to over 1.4 million b/d 1 200 1 000 in 2010 and to 1.8 million b/d in 2014, an 800

Thousand bpd Thousand 600 80 percent increase in comparison to 400 200 2006. Historically, western Canadian 0

heavy crude oil was the feedstock of 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 choice; and, in 2006, it approximated Conv Light Sweet Conv Med Sour Heavy Light Synthetic 636,000 b/d or 63 percent of total western Includes refineries in IL, IN, KY, MI, MN, ND, OH, and WI Canadian crude oil refined in that area. Receipts of heavy crude oil are projected to rise up to 1.1 million b/d in 2014. Conventional medium sour crude oil is expected to grow from 222,000 b/d in 2006 to 547,000 b/d in 2012, and remain flat thereafter. The large growth in heavy and medium sour crude oils reflects refiners’ expectations to add conversion capacity and reduce receipts of U.S. domestic or imports from the U.S. Gulf Coast. Conventional light sweet crude oil receipts are forecasted to rise slightly while light synthetic crude oil is projected to remain flat at about 123,000 b/d through 2015.

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3.3.2.2 Eastern PADD II Eastern PADD II is located east of Chicago and Patoka, but excludes Toledo, PADD II (East) Ohio which is considered an existing Forecast Western Canadian Crude Oil Receipts Total Refining Capacity 734 thousand bpd market in northern PADD II. Eastern 800 PADD II has a refining capacity of 700 600

734,000 b/d and, in 2006, western 500 Canadian crude oil accounted for only 11 400 300 Thousand bpd Thousand percent or 84,000 b/d of that capacity. 200 Receipts of light synthetic crude oil are 100 expected to increase from 2009 to 2011 0 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 and then decline significantly. Heavy Conv Light Sweet Conv Med Sour Heavy Light Synthetic

crude oil deliveries are expected to grow Includes refineries in IL, KY, MI, and OH from 33,000 b/d in 2006 to 126,000 b/d in 2011, and then jump to almost 400,000 b/d in 2012 with a further increase to about 633,000 b/d in 2013. Proposed expansions and conversions will significantly increase runs of western Canadian heavy crude oil by over 600,000 b/d in the next ten years.

3.3.2.3 Southern PADD II The nine refineries in southern PADD II PADD II (South) are located in Kansas, Oklahoma and Forecast Western Canadian Crude Oil Receipts Tennessee and have a total refining Total Refining Capacity 966 thousand bpd capacity of 966,000 b/d. With the reversal 200 180 of the Enbridge Spearhead pipeline in 160 140 March 2006, western Canadian producers 120 100 are able to deliver up to 125,000 b/d of 80

Thousand bpd Thousand 60 crude oil into Cushing, Oklahoma. 40 20 Spearhead pipeline has been at capacity 0

and, recently, Enbridge announced a 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 successful open season to expand the Conv Light Sweet Conv Med Sour Heavy Light Synthetic capacity to 190,000 b/d in early 2009. Includes refineries in KS, OK and TN

Access to the Cushing market offers western Canadian crude oil producers opportunities to penetrate other markets (e.g. PADD III) through existing pipelines. Recently announced refinery conversions in Southern PADD II provide opportunities to ship increased volumes of western Canadian crude oil. In 2006, this market processed about 46,000 b/d of western Canadian crude oil, and this is projected to rise to almost 76,000 b/d in 2011. The increase in demand will be heavy crude oil.

3.3.3 PADD III PADD III, comprising of Alabama, Arkansas, Louisiana, Mississippi, New Mexico and Texas, is the largest and most complex refining district in the United States and has 49 refineries. Total refining capacity approximates 7.5 million b/d, of which a significant portion has heavy crude oil processing capabilities. In recent years, PADD III refineries have added six new cokers. These additions allow refineries to run heavier and more sour

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grades of crude oil which are becoming increasingly more predominant in the world’s oil production slate.

In 2006, PADD III refineries imported over 5.6 million b/d of crude oil, and PADD III – Imported Crude Oil 2002-2006 almost 2.4 million b/d of that was heavy Total Refining Capacity 7,464 thousand bpd crude oil. It imports crude oil from Mexico 7 000 (18 percent), Venezuela (13 percent), 6 000 5 000 Saudi Arabia (10 percent) and Iraq (5 4 000 percent), and it also imported from 16 3 000 2 000 other countries. Deliveries of western bpd Thousand 1 000 Canadian crude oil commenced in April 0 2006 through the reversed ExxonMobil 2002 2003 2004 2005 2006 pipeline (Pegasus) from Patoka, Illinois to Light Sweet Light/Medium Sour Heavy Corsicana, Texas. The pipeline is Source: EIA operating at its capacity of about 65,000 b/d.

Due to its size and ability to run heavy sour crude oil, PADD III is currently the largest untapped market for western Canadian crude oil. There are several pipeline proposals to access this market. New infrastructure would provide western Canadian crude oil producers opportunities to access this market. Although a number of the cokers in PADD III were originally dedicated to specific supply sources, such as Venezuela, these contracts are expected to expire in the near future providing western Canadian crude oil producers with a significant opportunity, particularly for heavier grades.

3.3.4 PADD IV PADD IV which includes Colorado, Montana, Utah, Wyoming and Idaho is the smallest of the Districts, and accounts for about four percent of total crude oil consumption. It is comprised of 16 refineries located in four of the five states (there are no refineries in Idaho), and has a total refining capacity of PADD IV 596,000 b/d. Although PADD IV is Forecast Western Canadian Crude Oil Receipts smaller than the other core markets, it has Total Refining Capacity 596 thousand bpd been a consistent market for western 600 Canadian crude oil supply. Until recent 500 domestic crude oil production increases in 400 certain areas of PADD IV, it has 300 200 increasingly processed western Canadian bpd Thousand 100 crude oil. 0

2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 In 2006, PADD IV processed almost Conv Light Sweet Conv Med Sour Heavy Light Synthetic 270,000 b/d of Canadian crude oil or 45 percent of its feedstock requirements. There are no other crude oil imports into this market, outside of Canadian, due to the lack of alternative crude oil accessibility. In 2007, western Canadian crude oil receipts are forecasted to increase to almost 295,000 b/d and remain at this level through 2011, and then increase to about 313,000 b/d for the

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remainder of the period. Conventional light sweet crude oil receipts increase from about 68,000 b/d in 2006 to almost 83,000 b/d in 2010, decline to 71,000 b/d in 2011 and remain flat through 2015. The growth occurs in heavy crude oil receipts and they increase from almost 158,000 b/d in 2006 to about 200,000 b/d in 2012.

Although PADD IV has experienced some recent demand growth, the lack of expected population growth, combined with the dispersed nature of the population provides for limited opportunities to increase western Canadian crude oil deliveries. Future opportunities for western Canadian crude oil will rely on the replacement of declining domestic supply combined with backfilling any small growth in refinery capacity.

3.3.5 PADD V PADD V includes Alaska, Washington, PADD V - Imported Crude Oil 2002-2006 Oregon, California, Nevada, Arizona and (California and Washington) Hawaii. The majority of PADD V is Total Refining Capacity 2,630 thousand bpd geographically divided from the rest of the 2 500 United States by the Rocky Mountains, 2 000 and has very good access to tanker traffic, 1 500 including proximity to Alaskan and 1 000 offshore California crude oil production. It bpd Thousand 500 therefore results in the region being 0 relatively independent from the rest of the 2002 2003 2004 2005 2006 country for its domestic sources of crude Light Sweet Light/Medium Sour Heavy oil supply, and it imports over 35 percent Source: EIA of its requirements.

For purposes of this report, the PADD V has been divided into two market regions: Washington and California. These two states account for 80 percent of the 3.2 million b/d of refining capacity, and they represent both the current demand and future prospects for western Canadian crude oil.

3.3.5.1 Washington There are five refineries in Washington with a capacity of almost 624,000 b/d and they primarily process medium sour crude oil. These refineries have historically sourced their feedstocks from Alaska, and it currently accounts for approximately 70 percent of their runs. Washington has historically been a small but important niche market for western Canadian crude oil, particularly conventional light sweet. In 2006, western Canadian crude oil accounted for 16 percent of imports into Washington - the largest single import source. It imports the remainder of its requirements primarily from the Persian Gulf.

Receipts of western Canadian crude oil are estimated to increase by over 33 percent from 97,000 b/d in 2006 to almost 129,000 b/d in 2007 or about 21 percent of refining capacity. Conventional light sweet crude oil will continue to be the predominant feedstock growing from about 45,000 b/d in 2006 to 78,000 b/d in 2008 and remaining flat thereafter. Heavy crude oil demand is estimated to increase marginally from 18,000 b/d in 2006 to about 25,000 b/d in 2008, and then rise substantially to 48,000 b/d in 2011

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and maintain that level through 2015. Conventional medium sour crude oil is also expected to rise marginally over the next few years. The growth in these crude oils reflects announced refinery conversion projects. Light sweet synthetic crude oil is forecasted to grow from 20,000 b/d in 2006 to 30,000 b/d in 2008 and remain flat through 2010, and then decline to 17,000 b/d through to 2015.

The Washington market has the potential PADD V (Washington) to process additional volumes of western Forecast Western Canadian Crude Oil Receipts

Canadian crude oil in view of the ongoing Total Refining Capacity 624 thousand bpd decline in Alaskan North Slope (ANS) 600 crude oil production. The survey results 500 show Canadian deliveries to Washington 400 300

increasing from about 97,000 b/d in 2006 200 Thousand bpd Thousand to 160,000 b/d in 2008. Pipeline 100

constraints, however, may be an issue. 0

Trans Mountain’s TMX1 program will 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 add about 75,000 b/d in late 2008, and Conv Light Sweet Conv Med Sour Heavy Light Synthetic based on the survey results it would leave almost 15,000 b/d of the incremental capacity for the remainder of Trans Mountain’s shippers.

3.3.5.2 California California has 20 refineries with a refining capacity of over 2 million b/d. Most of the refineries are located in two regions (Los Angeles and San Francisco) and account for approximately 95 percent of the state’s refining capacity. California’s refineries are highly complex with extensive upgrading capabilities, in part, due to having the strictest environmental requirements in the United States for refined petroleum products.

Refineries in California have primarily PADD V (California) - Imported Crude Oil 2002-2006 processed medium sour and heavy crude oils. Last year, California refineries Total Refining Capacity 2,005 thousand bpd 2 000 received almost two-thirds of their supply 1 800 1 600 from domestic sources, and ANS 1 400 1 200 accounted for approximately 85 percent. 1 000 The remainder is sourced from Saudi 800 600 Arabia (12 percent), Ecuador (10 percent), bpd Thousand 400 200 Iraq (8 percent) and Mexico and Brazil (5 0 percent each) while Canada accounted for 2002 2003 2004 2005 2006 Light Sweet Light/Medium Sour Heavy less that one percent. Source: EIA California’s traditional domestic crude oil supply sources are forecasted to fall by three to five percent per year and, as a result, it will become increasingly reliant on imports of foreign crude oil. Given Canada’s proximity and forecasted growth in crude oil supply, this market represents a significant opportunity for western Canadian crude oil producers. Currently, however, pipeline capacity to the west coast of British Columbia is limited and there is no overland route available. However, there are proposals to serve this market.

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3.4 Asia The Asian market has attracted significant interest in the last few years because of its rising demand for energy and this is expected to continue. The United States Energy Information Administration (EIA) forecasts that demand will increase from 23.3 million b/d in 2004 to 32.7 million b/d in 2020, a 40 percent increase. It projects that demand in China will grow from 6.4 million b/d in 2004 to 11.9 million b/d in 2020, a rise of over 85 percent.

This market has the potential to process Canada’s oil sands production. In fact, some of these countries are currently involved in oil sands development while others are considering acquisitions. In addition, some proponents are proposing pipelines to the west coast of British Columbia to serve this market.

3.5 Summary Demand for western Canadian crude oil by Canadian refineries is expected to rise from 765,000 b/d in 2006 to almost 1.1 million b/d in 2015, a 44 percent increase. As expected, the majority of the growth will be heavy and light synthetic crude oils. Over the same period, exports to the United States are projected to increase from about 1.6 million b/d to almost 3.1 million b/d, a 100 percent growth. Demand for heavy crude oil is by far the largest of the crude types.

The refinery survey results indicate that traditional markets (i.e. western Canada, Ontario, upper PADD II, PADD IV and Washington State) in Canada and the United States will continue to process large volumes of western Canadian crude oil with the potential for expansions into new markets such as Québec, eastern PADD I, southern and eastern PADD II, PADD III, California and the Far East.

4 CRUDE OIL SUPPLY FORECAST AND MARKET DEMAND

The following three charts illustrates CAPP’s western Canadian crude oil supply forecast in the Pipeline Planning Case in comparison to the CAPP refiner survey.

During the period from 2006 to 2011, inclusive, market demand for western Canadian light crude oil will exceed supply, and then market demand declines resulting in light crude oil supply exceeding demand. The opposite occurs for heavy crude oil supply and market demand. This reflects refiners’ views that they expect to add upgraders at their refineries to process growing volumes of heavy crude oil supply. It is not expected that all of the proposed upgraders at the refineries will proceed as there are also proposals to build upgraders in the Fort Saskatchewan, Alberta area.

In total, CAPP’s crude oil supply forecast is relatively close to the aggregated results of the CAPP refiner survey. However, as mentioned previously, CAPP did not survey all the refineries in North America that could conceivably process western Canadian crude oil.

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As a result, refinery demand for specific crude types may exceed supply in some instances.

4.1 Light Crude Oil Supply versus Market Demand

Western Canadian Light Supply* vs Market Demand

3 000

2 500

2 000

1 500

1 000 Thousand bpd Thousand 500

0 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

Light Supply Market Demand

* Pipeline Planning Case

4.2 Heavy Crude Oil Supply versus Market Demand

Western Canadian Heavy Supply* vs Market Demand

3 000

2 500

2 000

1 500

1 000 Thousand bpd Thousand 500

0 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

Heavy Supply Market Demand

* Pipeline Planning Case

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4.3 Western Canadian Crude Oil Supply versus Market Demand

Western Canadian Crude Oil Supply* vs Market Demand

6 000

5 000

4 000

3 000

2 000 Thousand bpd Thousand 1 000

0 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

Total Supply Total Demand

* Pipeline Planning Case

5 CRUDE OIL PIPELINES

5.1 Major Crude Oil Pipelines As discussed in the Crude Oil Production and Supply section, significant expansion of the oil sands is expected through 2020 while the Oil Markets section illustrates that additional pipeline infrastructure will be required to meet demand. This section will focus on current infrastructure and proposed pipeline expansions to meet growing supply and increased market demand.

Historically, major Canadian crude oil pipelines, with the exception of Express Pipeline and Enbridge Line 9 (Montreal, Québec to Sarnia, Ontario), operated as common carriers. On common carrier pipelines, shippers nominate on a monthly basis for space, without a contract. In the future, some pipelines are proposing contract carriage (i.e. long-term take-or-pay commitments), such as TransCanada Keystone and Enbridge Gateway pipelines, to ensure there is sufficient support for these projects.

5.2 Existing Crude Oil Pipelines Western Canadian crude oil is delivered to markets through three major Canadian trunklines (see Appendix 7.7).

Enbridge’s mainline originates at Edmonton, Alberta and extends east across the Prairies to the U.S. border near Gretna, Manitoba where it connects to the Lakehead system and delivers crude oil to the U.S. Midwest and to Sarnia, Ontario.

Kinder Morgan’s Trans Mountain pipeline originates in Edmonton and extends across British Columbia to Burnaby, its Westridge dock and Washington State.

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Kinder Morgan’s Express pipeline originates in Hardisty, Alberta and delivers to locations in PADD IV and connects to the Platte pipeline in Casper, Wyoming for delivery to Wood River, Illinois.

The following chart illustrates the estimated capacity of the major trunklines from western Canada.

Estimated Capacity Pipeline Crude Quality/Type b/d Light 818,000 Enbridge Heavy 1,116,000 Express Light/heavy ratio (50/50) 282,000 Trans Mountain Light/heavy ratio (80/20) 260,000

5.2.1 Enbridge Pipelines The Enbridge pipeline system which operates in Canada and the U.S. is the world's longest crude oil pipeline. It can deliver more than 2 million b/d of crude oil and other commodities from western Canada to other markets in western Canada, the U.S. upper Midwest and Ontario. In addition, it connects to various pipelines in the U.S. such as Spearhead and Mustang. It also receives crude oil from U.S. pipelines for deliveries to markets in the U.S. Midwest and Ontario.

At the end of 2005, Enbridge completed its Terrace Phase III expansion adding 130,000 b/d of capacity. In late 2006, Enbridge completed Stage 1A of its Southern Access program adding about 38,000 b/d at Superior, Wisconsin.

5.2.2 Kinder Morgan (Trans Mountain) Pipeline The Trans Mountain pipeline system originates in Edmonton, Alberta and transports crude oil to the Vancouver area, including its Westridge dock for vessel loadings, and to refineries in Washington. The system also ships refined petroleum products from the Edmonton refineries to Kamloops and Vancouver.

The capacity of the pipeline varies depending on the amount of heavy crude oil transported; however, it can currently transport about 260,000 b/d under typical conditions. In April 2007, it completed the Pump Station Expansion (PSE) which added about 35,000 b/d of capacity. The PSE was designed to increase heavy crude oil capabilities from 10 percent to 20 percent.

5.2.3 Kinder Morgan Express-Platte Pipelines The Express pipeline ships light, medium and heavy crude oil from Hardisty, Alberta to markets in PADD IV. The Express system was expanded in 2005 from 172,000 b/d to its current capacity of 282,000 b/d. The pipeline is underpinned by contracts totaling 235,000 b/d with the remaining space for spot shippers.

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Express is connected to Platte pipeline at Casper, Wyoming which extends to Guernsey, Wyoming and then to Wood River, Illinois. Capacity from Guernsey to Wood River is about 143,000 b/d and because of strong demand, it has been allocating line space since January, 2007.

5.2.4 Enbridge Spearhead The Spearhead pipeline is connected to the Enbridge Lakehead system at Flanagan, (near Chicago) Illinois and delivers crude oil to Cushing, Oklahoma. The pipeline was reversed in March 2006 with an initial capacity of 125,000 b/d and has the capability to move light and heavy crude oil.

5.2.5 Mustang Pipeline The Mustang system connects to the Enbridge Lakehead system at Lockport, Illinois and extends to the Patoka, Illinois terminal. It has a heavy crude oil capacity of about 93,000 b/d, and nominations have exceeded capacity since December 2005, and this is expected to continue. Mustang has a committed capacity of 88,000 b/d.

5.2.6 ExxonMobil Pegasus The Pegasus pipeline was reversed in April, 2006 and runs from Patoka, Illinois to Nederland, Texas providing western Canadian crude oil producers with pipeline access to the U.S. Gulf Coast. The pipeline has a heavy crude oil capacity of 66,000 b/d, of which 50,000 b/d is committed capacity. Nominations have exceeded capacity since March, 2006.

5.3 Crude Oil Supply Transportation Requirements

The demand for western Canadian crude oil by western Canadian refiners is expected to increase modestly by 50,000 b/d to 624,000 b/d from 2007 to 2011. During the same period, western Canadian crude oil supply in the Pipeline Planning Case is forecast to increase from 2.5 million b/d to 3.4 million b/d. This represents an average year-over- year growth rate of almost 230,000 b/d during this period. Since the increase in western Canadian refinery demand will only use 50,000 b/d of this growth, the remaining increased supply will need to be shipped to other markets.

In 2007, the three major trunk pipelines, Express, Trans Mountain and Enbridge will transport about 1.8 million b/d of crude oil (excludes shipments of refined petroleum products on Enbridge and Trans Mountain) which is over 70 percent of total western Canadian crude oil supply. The throughputs on these pipelines have recently been subject to capacity limitations either directly, in the case of Enbridge and Trans Mountain, through apportionment or indirectly due to downstream bottlenecks as is currently the case on Platte pipeline. Though the recent capacity restrictions have been short-lived, western Canadian oil pipelines are reaching the limits their capacity.

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Based on recent oil pipeline capacity restrictions and increasing crude oil supply, the need for oil pipeline expansion projects is increasing. The incremental growth in crude oil supply using 2007 as a base year is as follows.

Incremental Western Canadian Crude Oil Supply to Market Pipeline Planning Case (kbpd) 2007 2011 2015 2020 - 910 1,921 2,740

Approximately 1 million b/d of oil pipeline capacity will need to be in service prior to 2011. As illustrated in section 5.4, almost 1.3 million b/d of oil pipeline capacity from western Canada is scheduled to be in service by July 2010. Although some of this proposed capacity is currently subject to lengthy regulatory proceedings. It generally takes over four years for a new pipeline to be put into service. The need for incremental capacity beyond 2011 is also significant and amounts to greater than 1.9 million b/d by 2015 and over 2.7 million b/d by 2020.

5.4 2007-2010 Crude Oil Pipeline Expansions/Proposals from Western Canada The following tables illustrate crude oil pipeline expansions from western Canada through to 2010, and crude oil pipeline expansions and proposals by Enbridge downstream of Superior, Wisconsin in the same period. These expansions and proposals are either in the construction phase or in the regulatory process. There are no major expansions from western Canada and downstream of Superior until the first quarter 2008. It is possible that leading up to these expansions in the first quarter 2008 that crude oil pipeline capacity will be tight; in fact, capacity may be apportioned.

By mid-2010, it is expected that an additional 1.3 million b/d of additional oil pipeline capacity will be available from western Canada to the west coast of British Columbia, the U.S. Midwest and Ontario.

Current Oil Pipeline Expansions ex Western Canada Cumulative Pipeline In Service Date kbpd kbpd Enbridge Southern Access 2A 1Q 2008 60 60 Kinder Morgan TMX1 Anchor Loop November 2008 40 100 Enbridge Light Sour Line 4Q 2008 185 285 Enbridge Southern Access 2B 1Q 2009 85 370 Enbridge Line 4 – Edmonton to Hardisty March 2009 450 N/A TransCanada Keystone 4Q 2009 435 805 Enbridge Clipper July 2010 450 1,255

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Enbridge is proposing to add over 1 million b/d of additional capacity downstream of Superior, Wisconsin by the end of 2010.

Current Oil Pipeline Expansions/Proposals by Enbridge Lakehead Cumulative Pipeline In Service Date kbpd kbpd S. Access 1A 3Q 2007 6 6 S. Access 1B 1Q 2008 146 152 S. Access 2 1Q 2009 254 406 Line 5 3Q 2008 50 456 Line 6B 3Q 2010 100-235 556-691 Line 6C 4Q 2010 500 1,056-1,191

5.4.1 Kinder Morgan TMX 1 The second phase of TMX1, Anchor Loop, adds another 40,000 b/d of capacity and the target completion date is November 2008. At that time, capacity will increase to 300,000 b/d with 20 percent heavy crude oil.

5.4.2 Enbridge Southern Access Expansion/Extension Enbridge is proceeding with the Southern Access expansion program that will add up to 145,000 b/d to its current capacity from Hardisty, Alberta to Superior, Wisconsin by early 2009. The staged program primarily includes modifications and enhancements to existing pump stations.

The program commencing at Superior, Wisconsin includes the construction of a new 42- inch line from Superior along the Lakehead system to Delavan, Wisconsin then to Flanagan, Illinois where it will connect with the Enbridge Spearhead pipeline. The staged expansion has an initial capacity of 400,000 b/d and should be completed by early 2009. Further expansions to 600,000 b/d and 800,000 b/d are possible by the addition of pump stations, and could be in service by early 2011 and early 2012, respectively.

Enbridge is also extending the Southern Access pipeline to Patoka, Illinois from Flanagan, Illinois with a 36-inch line that will have an initial capacity of 400,000 b/d and an in service date of early 2009. The extension will have the capability to expand to 800,000 b/d.

5.4.3 Enbridge Light Sour Line As part of its Southern Lights project (see 5.8.1), Enbridge is constructing a 20-inch 185,000 b/d light sour crude oil pipeline from Cromer, Manitoba to Clearbrook, Minnesota with an in service date of the fourth quarter 2008.

5.4.4 TransCanada Keystone The Keystone pipeline, currently subject to regulatory review processes, will run from Hardisty, Alberta to terminals in Wood River and Patoka and is scheduled to be in service in late 2009 with an initial capacity of 435,000 b/d. The pipeline will include both new

- 21 - Canadian Association of Petroleum Producers Crude Oil Forecast, Markets and Pipeline Expansions construction and the conversion of existing pipe that is currently in natural gas service. In February 2007, it received approval from the National Energy Board (NEB) to transfer a portion its natural gas facilities to crude oil service. The NEB is conducting a public hearing in June 2007 regarding TransCanada’s application to construct and operate the Canadian facilities, and for tolls and tariffs.

5.4.5 Enbridge Line 4 Extension Line 4 currently extends from Hardisty, Alberta to Superior, Wisconsin. Enbridge will extend Line 4 back to Edmonton by connecting currently deactivated 48-inch segments with a new 36-inch pipeline. It will have an initial capacity of 450,000 b/d and an ultimate capacity of 880,000 b/d, and the targeted in service date is March, 2009. This extension back to Edmonton is required for Enbridge Clipper to ensure capacity is available.

5.4.6 Enbridge Clipper The 36-inch Clipper pipeline is an expansion of Enbridge’s existing mainline system and would extend from Hardisty, Alberta to Superior, Wisconsin with a connection to the Minnesota pipeline at Clearbrook, Minnesota. The initial capacity would be 450,000 b/d and could be expanded to 800,000 b/d based on 100 percent heavy crude oil. It is expected to be in service in July, 2010. Enbridge filed its application with the regulatory authorities in May 2007.

5.4.7 Enbridge Line 5 Expansion Enbridge is considering a 50,000 b/d expansion of Line 5 that extends from Superior, Wisconsin to Sarnia, Ontario by adding pump stations to serve increasing demand by Ontario refineries. It could be in service by third quarter 2008.

5.4.8 Enbridge Line 6B Expansion Enbridge is exploring various options to expand Line 6B which extends from Chicago to Sarnia. The proposals include adding pump stations which would increase capacity, depending on the number of pump stations added, by 20,000 b/d to 100,000 b/d. If all the pump stations were added the additional capacity on Line 6B would be about 235,000 b/d. The in service date(s) would range from third quarter 2009 to third quarter 2010 depending the option(s).

5.4.9 Enbridge Line 6C Enbridge is considering a new line from the Griffith/Hartsdale terminal to Stockbridge, Michigan and it would parallel Line 6B. The intent is to supply additional Michigan and Ohio refinery demand. The estimated capacity would be 500,000 b/d with an in service date of late 2010. If needed, the line could be extended to Sarnia, Ontario.

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5.4.10 Enbridge Line 14 Extension Enbridge is reviewing an extension (12 miles) of Line 14 to connect with the Mustang pipeline at Lockport, Illinois to ship light crude oil. The capacity would be about 200,000 b/d and could be in service in 2009.

5.4.11 TransCanada Keystone Heartland Extension The Keystone pipeline proposal also includes an extension from its Scotford, Alberta terminal to Hardisty. The 600,000 b/d pipeline could be in service in 2009 or 2010.

5.5 2007-2010 Crude Oil Pipeline Proposals in the United States

2007-2010 Oil Pipeline Proposals in the United States

Line 5 Expansion Capacity 50 kbpd Trans Edmonton Enbridge (North In service 3Q08 Dakota) expansion Line 6B Expansion Mountain Capacity 100 kbpd Hardisty Capacity 30 kbpd In service 4Q08 In service 3Q09 Burnaby Line 6C New Line Anacortes Capacity 500 kbpd In service 2010

Express

Montreal

Minnesota Portland MinnCan expansion Capacity 165 kbpd Enbridge Sarnia BP Ohio Pipeline In service 2Q08 Guernsey Capacity 450 kbpd

Salt Lake City Chicago Toledo

Platte Lima Enbridge New Line BP Capacity 450 kbpd Light line ex-Chicago BP Wood Patoka In service mid 2010 Capacity 100 kbpd River In service 1Q09 Chicap Reversal Cushing Mid Valley ExxonMobil/Enbridge Capacity 300+ kbpd ExxonMobil Mustang Expansion In service 4Q07-2Q08 Capacity 40 kbpd In service 4Q08

ExxonMobil/Enbridge Capline Pegasus Expansion Capacity 30 kbpd Spearhead Expansion (N/S) St. James In service 4Q08 Houston Inc. Capacity1 65 kbpd In service 2Q09

5.5.1 BP Pipelines (North America) BP is proposing a redeployment of existing pipeline infrastructure from Chicago, and there are several proposed options. They are: 1) reverse the BP#1 Cushing to Chicago pipeline which provides 100,000 to 200,000 b/d of light crude oil capacity; 2) reverse the Chicap pipeline to allow over 300,000 b/d of light crude oil from Chicago; 3) expand BP#2 from the Griffith/Hartsdale terminals to the BP Whiting, Indiana refinery by 170,000 to 220,000 b/d between late 2007 and mid-2008; and/or 4) construct a 450,000 b/d pipeline from the Lakehead system at Chicago to the Toledo, Ohio refineries.

5.5.2 Minnesota Pipeline Minnesota Pipeline, operated by Koch Pipeline Company, is constructing the MinnCan project. The expansion consists of a new 165,000 b/d pipeline extending from Clearbrook, Minnesota to the Flint Hills and Marathon refineries near Minneapolis/St. Paul, Minnesota. It is scheduled to be in service in the second quarter 2008. Current capacity of the Minnesota pipeline is about 300,000 b/d.

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5.5.3 Enbridge North Dakota The North Dakota pipeline connects to the Enbridge Lakehead pipeline at Clearbrook, Minnesota, and provides producers in Montana and North Dakota with access to markets in PADD II. Increased production in these areas has resulted in a need for additional pipeline capacity and, as a result, Enbridge will add 30,000 b/d of capacity to the North Dakota system later this year, and possibly another 30,000 b/d in late 2008.

5.5.4 ExxonMobil Pipeline ExxonMobil is proposing expansions on its Mustang and Pegasus pipelines. The Mustang expansion would provide an additional 40,000 b/d of capacity from Lockport, Illinois to Patoka while the Pegasus expansion would increase capacity by 30,000 b/d from Patoka to Nederland, Texas with a start up in late 2008 for both proposals.

5.5.5 Enbridge Spearhead Enbridge recently announced the successful completion of an open season. As a result, Enbridge will increase the capacity by 65,000 b/d to 190,000 b/d, with a completion date of early 2009. Of the 65,000 b/d increase, 30,000 b/d is for committed shippers.

5.5.6 Enbridge Chicago to Lima Enbridge is considering a 30-inch greenfield pipeline from Chicago to Lima, Ohio. The 450,000 b/d pipeline could be in service in mid-2010.

5.6 Post 2011 Crude Oil Pipeline Proposals from Western Canada

Post 2011 Oil Pipeline Proposals from Western Canada

Gateway TMX Northern Leg Capacity 400 kbpd Capacity 400 kbpd In service 2012-2014 In service 2012 Edmonton Altex Capacity 250+ kbpd TMX2 Expansion Hardisty Trans In service 2011 Capacity 100 kbpd Mountain In service mid-2011 Burnaby TMX3 Expansion Anacortes Line 9 Reversal Capacity 300 kbpd Keystone Capacity 180 kbpd In service 2012 In service 2013 Express Cushing Extension Capacity 155 kbpd In service 2013 Montreal TransCanada AB-California Capacity 400 kbpd In service 4Q12 Portland AB-USGC Enbridge Sarnia Guernsey Capacity 400-600 kbpd In service 2012 Salt Lake City Sunoco New Line Chicago Capacity 200+ kbpd Platte Lima In service 2011-2012 Express Option 2 Capacity 55 kbpd In service 2011 Wood Patoka River Mid Valley Express Option 1 Cushing Capacity 170+ kbpd Enbridge New Line In service 2011 ExxonMobil Capacity 400 kbpd In service 2012-2014

Express Bullet Capacity 400+ kbpd Capline Express Routing Patoka South Spearhead Looping Houston St. James Capacity1 200 kbpd In service 2011-2012

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5.6.1 Altex Energy Ltd. Altex is proposing a direct heavy crude oil pipeline from either Fort McMurray or Hardisty, Alberta to Port Arthur, Texas with an initial capacity of 250,000 b/d. It would be a contract carrier with some capacity for spot shippers, and could be in service in 2011. Altex will use proprietary technology that will eliminate the need for diluent.

5.6.2 Enbridge Gateway The Gateway project includes the construction of a new 30-inch pipeline from Edmonton, Alberta to a deep water port at Kitimat, British Columbia and is being designed to provide over 400,000 b/d of crude oil export capacity. Crude oil would be loaded on tankers for delivery to PADD V or the Far East. Enbridge is anticipating an in service date between 2012 and 2014.

5.6.3 Kinder Morgan Trans Mountain TMX 2 and TMX 3 TMX 2 is a proposed new 30 and 36-inch line from Edmonton to Kamloops to provide an incremental 100,000 b/d with an in service date of mid-2011, and is dependant on market support. TMX 3 is a 30-inch pipeline from Kamloops, British Columbia to Sumas and would add 300,000 b/d resulting in a total capacity of 600,000 b/d by 2012. These expansions would provide additional access to Burnaby, Washington State and other markets served by oil tankers which load at its Westridge dock.

TMX Northern Leg is a proposed 30-inch 400,000 b/d pipeline extending from its existing system near Rearguard, British Columbia to a deep water port facility at Kitimat, British Columbia that could accommodate Very Large Crude Carriers (VLCC). Depending on industry support, the pipeline could be in service by early 2012. This option allows shippers to ship on either the north or south line.

5.6.4 Kinder Morgan Express/Platte Pipeline Systems Kinder Morgan has two expansion options. Option 1 includes a new 24-inch pipeline from Hardisty to Casper, Wyoming with an initial capacity of 170,000 b/d expandable to 330,000 b/d. It would also include an extension to Cushing, Oklahoma with an initial capacity of 100,000 b/d with the capability to expand up to 200,000 b/d. Option 2 consists of a partial looping of Express pipeline which would add 55,000 b/d of capacity and a 14,000 b/d capacity increase to the Platte pipeline. The proposed in service date for both options is 2011.

5.6.5 Kinder Morgan United States Gulf Coast (USGC) Kinder Morgan is also considering three possible routes to the USGC. They include a bullet line from Hardisty to the USGC; an extension of Express pipeline to the USGC; and a line from Patoka to the USGC.

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5.6.6 TransCanada California TransCanada is conducting a feasibility study to ship up to 400,000 b/d of western Canadian crude oil by pipeline to California. The target completion date is fourth quarter 2012.

5.6.7 Enbridge Montreal-to-Sarnia (Line 9) Reversal As discussed in the Markets section, Enbridge forecasted in its application to the National Energy Board in April 2007 for tolls and tariffs that it expects a steady decline in throughput on Line 9 to 2012. It subsequently expects no throughput on Line 9 beyond 2013. Therefore, if market demand exists there is a potential that this line could be reversed to serve the Montreal refineries of Petro-Canada and Shell Canada.

5.6.8 Enbridge Eastern PADD I Access Enbridge is conceptually considering a light crude oil pipeline from Chicago, Patoka or Toledo to refineries in New Jersey and Philadelphia. The pipeline, with a capacity of up to 400,000 b/d, would require an industry decision by 2007 to be in operation in the 2012-2014 timeframe.

5.6.9 Sunoco Pipeline Similar to Enbridge, Sunoco is considering a light crude oil pipeline to refineries in eastern PADD I, including its Marcus Hook, Pennsylvania refinery in the 2011-2012 timeframe. The initial capacity would be about 200,000 b/d.

5.6.10 Enbridge Spearhead Looping Enbridge has indicated that if shipper support exists, it could loop the Spearhead pipeline with 200,000 b/d of capacity that could be in service in about 2011 or 2012.

5.6.11 TransCanada Keystone Cushing Extension Keystone pipeline, which would extend from Hardisty to Wood River/Patoka, is proposing an extension to Cushing, Oklahoma. With shipper support, it would have an ultimate capacity of 590,000 b/d.

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5.7 Post 2010 Crude Oil Pipeline Proposals from Patoka, Illinois and Cushing, Oklahoma to the USGC

Post 2010 Oil Pipeline Proposals from Patoka, Illinois and Cushing, Oklahoma to USGC

Trans Edmonton Mountain Hardisty Burnaby Anacortes

Express

Montreal

Portland Enbridge Sarnia Guernsey

Salt Lake City Chicago

Platte Lima

BP Wood Patoka River Mid Valley Cushing

ExxonMobil/Enbridge Capline Clydesdale New Line TEPPCO Capacity 400 kbpd Maple Leaf New Line In service late 2010 Capacity 370 kbpd Houston St. James In service 3Q10

5.7.1 ExxonMobil Pipeline – Enbridge Pipelines Joint Initiative ExxonMobil and Enbridge are jointly developing a project from Patoka to the Beaumont and Houston, Texas areas. The proposed Clydesdale pipeline would be a new 30 or 36- inch heavy crude oil pipeline from Patoka to Beaumont, and then a 24-inch line to Houston with a capacity of 400,000 b/d and a start-up in late 2010. Depending on the size of the pipeline it could expand to either 600,000 b/d or 800,000 b/d.

5.7.2 TEPPCO TEPPCO is proposing to build a new 36-inch line from its Cushing terminal to refineries from western Louisiana to Texas City, Texas. The initial capacity would be 370,000 b/d expandable to about 800,000 b/d. It is seeking non-binding commitments and, if successful, the pipeline would be in service by third quarter, 2010.

5.7.3 TransCanada Gulf Coast TransCanada is working on three alternatives to deliver between 400,000 b/d and 600,000 b/d to the Gulf Coast from Cushing, Oklahoma. It is seeking expressions of interest in 2007 and depending on the results it will conduct an open season in the first quarter 2008 with a target completion date of the fourth quarter 2012.

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5.8 Diluent Pipeline Proposals

Condensate Import Options

Enbridge Gateway Condensate Import Capacity 150 kbpd In service 2012-2014 Trans Edmonton Mountain Hardisty Burnaby Enbridge Southern Lights Anacortes Capacity 180 kbpd In service 2010 Express Montreal

Portland

Enbridge

Salt Lake City Guernsey Sarnia Chicago Platte BP Lima BP Diluent Line Capacity 300 kbpd Wood Patoka River Mid Valley Cushing ExxonMobil

Capline

Houston St. James

5.8.1 Enbridge Southern Lights Enbridge applied to the National Energy Board in March, 2007 for approval of its Southern Lights project. The project was initiated by Enbridge in response to demand for additional diluent supply in western Canada from sources in the U.S. Midwest. The project includes: a new 16-inch diluent line from Flanagan, Illinois (near Chicago) to Clearbrook, Minnesota; the reversal of Line 13 from Clearbrook to Edmonton, Alberta to ship diluent; a capacity replacement project to expand its mainline capacity by modifying pump units on Line 2; and constructing a 20-inch 185,000 b/d light sour crude oil pipeline from Cromer, Manitoba to Clearbrook in the fourth quarter 2008.

The result of these changes would increase the light crude oil system capacity by 45,000 b/d from Edmonton to the U.S. Midwest. The capacity of the proposed diluent import line is 180,000 b/d, of which 77,000 b/d is for committed shippers. It will coincide with expansions of the Enbridge mainline system (i.e. Southern Access and Alberta Clipper) in order that crude oil capacity is unaffected. The project is expected to be in service by June 2010.

5.8.2 Enbridge Gateway Diluent As part of its Gateway crude oil export project, Enbridge is proposing a 150,000 b/d diluent import pipeline that would extend from Kitimat, British Columbia to Edmonton, Alberta. It would supply diluent to western Canadian heavy crude oil producers. The in service date will coincide with the export pipeline – between 2012 and 2014.

5.8.3 BP Pipelines (North America) BP is considering options to move diluent into the Chicago area. They include the conversion of the Cushing to Chicago pipeline or the Chicap/Capline into a diluent line.

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Both of these options would take diluent to the Chicago area where the Enbridge Southern Lights pipeline would ship it to Hardisty and Edmonton.

6 CONCLUSIONS

CAPP’s western Canadian crude oil supply forecast in the Pipeline Planning Case is slightly below last year’s in the early years, but higher later in the period. The CAPP refinery survey indicates that the crude oil supply outlook is aligned with refinery demand for western Canadian crude oil. There is, however, potential for expansions into new markets such as Québec, eastern PADD I, southern and eastern PADD II, PADD III, California and Asia.

By 2011, western Canadian crude oil supply rises by almost 1 million b/d in the Pipeline Planning Case, and in the same year, it is expected that almost 1.3 million b/d of additional crude oil pipeline capacity will be available from western Canada. These crude oil pipeline expansions will provide additional access to the core markets (e.g. Ontario, PADD II).

Looking out past 2011, there are numerous crude oil pipeline proposals from western Canada to the U.S. Midwest, the United States Gulf Coast, the west coast of British Columbia and to eastern PADD I. In light of the expected growth in oil sands supply after 2011, industry will need to decide in the near future on the various crude oil pipeline options. The lead time to receive regulatory approvals and construct a new crude oil pipeline is at least four years.

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