CERI Commodity Report Crude Oil

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1 March 2016 CERI Commodity Report Crude Oil Cap-and-Trade: Emissions Reductions Plan in Ontario Jon Rozhon Cap-and-Trade throughout the World A number of policy options exist for reducing greenhouse gases 1 (GHGs) in any economy. There may be taxes applied to energy producers and consumers, energy efficiency measures can be legislated, and subsidies and financing may be made available for renewable energy alternatives to GHG-producing hydrocarbons. These policies and measures can be instituted across the economy in question including the industrial, commercial, transportation, residential, agricultural, fossil fuel production and power sectors and may all be targeted. Emissions cap and trade systems represent one way to reduce GHGs a means that is usually directed at large industrial and power sector emitters. When cap-andtrade works well, it can be simple and effective in reaching GHG reduction goals: a government sets an emissions ceiling for a specific trading period, distributes allowances to large GHG emitters, and then those emitters trade or sell allowances to meet emissions obligations. Cap-and-trade, in theory, minimizes government interference and utilizes free market efficiencies. The invisible hand works to reduce carbon in the atmosphere at the lowest market price. One system that has appeared to work well is the one implemented by the Tokyo Metropolitan Government, which managed to reach a 25 percent emission reduction in FY 2014 after the 5 th year of their cap-and-trade program. 2 With a population in excess of 13 million people and a large, vibrant industrial base, Tokyo s achievement in GHG emissions reduction is something for other cities and nations to note (see Figure 1). CERI Commodity Report Crude Oil Editorial Committee: Paul Kralovic, Dinara Millington, Megan Murphy, Jon Rozhon, Allan Fogwill About CERI The Canadian Energy Research Institute is an independent, not-for-profit research establishment created through a partnership of industry, academia, and government in Our mission is to provide relevant, independent, objective economic research in energy and related environmental issues. For more information about CERI, please visit our website at or contact us at info@ceri.ca. Figure 1: Tokyo Emissions Reductions: FY2010 to 2014 Source: Tokyo Metropolitan Government Like any system, cap-and-trade is not without challenges. Chief among them is the setting of emissions targets. Set a target too stringent and it causes financial stress on the emitters and the economy; set a target too lax, and optimal reduction levels are not reached. This is what happened in Phase I of the European Union Emission Trading Scheme from 2005 to The caps were proposed by EU member states and approved by the European Commission. They were initially provided free to emitters and in too generous an overall allocation... the oversupply drove the carbon price down to 0 in In Australia, the cap-and-trade system has been highly politicized, with the system being changed according to the outcome of every national election since This highlights another challenge with cap and trade, the artificial nature of the market can be changed much more quickly than economic decision makers can react. There has been more success in New Zealand, which first legislated a trading scheme in 2008, though to make it palatable to all stakeholders, there presently exists no price signal and the system has been marginal at best in achieving emissions reductions over the years. 5 Cap-andtrade systems in major emitting countries like China, Korea, and India are only now getting underway, so it is too early to judge these schemes. Relevant Independent Objective

2 Page 2 North American Cap-and-Trade The United States has a long history of cap-and-trade programs of varying description to manage environmental externalities. Perhaps the most famous of these systems was the Acid Rain Program implemented in 1990 to reduce sulfur dioxide emissions largely from the power sector. After 10 years, the US saw an approximately 50 percent reduction from 1980 levels, when power-sector emissions were about 17.5 million tons. 6 This particular program was a textbook application of cap-and-trade principles: at the outset, the US federal government freely allocated allowances, and the power facility owners were permitted either to buy more allowances or reduce emissions. Their emissions reductions options were to install pollution controls, to change facility fuel mixes, or to scale back operations. When operators managed to reduce emissions below their allowance allocations, they could sell extra allowances or bank them. Incentives were therefore created to reduce emissions at the lowest cost. 7 In the end, society met its SO 2 emissions goals, electricity producers operated more cleanly, and the power system continued to supply ample energy to the nation. The Western Climate Initiative (WCI) is an ongoing emissions strategy, which began in 2007 as a US scheme but saw expansion into Canada (and at one point several Mexican states and a number of Canadian provinces that were observers to the initiative). The WCI was initially an agreement between the Governors of several western US states to consider various market-driven tools and government policies to deal with GHGs. However, today, the initiative is registered as a non-profit corporation and includes as participants only five jurisdictions: the US state of California, and the Canadian provinces of British Columbia, Quebec, Manitoba, and Ontario. Why the withdrawals? In the US, several governorships changed, with newly elected officials philosophically opposed to cap-and-trade as a way to address GHGs. Furthermore, when the recession hit North America in 2009, many of the states that rely on hydrocarbons as a pillar of their economies decided not to pass legislation authorizing participation in WCI s cap and trade 8 Long-term climate change strategy took a backseat to short-term economic recovery for certain states and that remains the state of matters today. Ontario s place in the WCI In the meantime, much has happened in Canada on the climate change front. Two of the remaining participants in the WCI Quebec and California agreed in 2013 to link their emissions trading programs. During the Paris climate conference in 2015, Ontario, Quebec, and Manitoba signed a memorandum of understanding to harmonize their cap-and-trade programs under the WCI. 9 Manitoba and Quebec each rely heavily on GHG-neutral hydro resources to power their economies. However, Ontario is not nearly as well endowed with hydropower as its eastern and western neighbours and therefore must rely on a more varied electricity energy mix that includes 28 percent natural gas (see Figure 2). Ontario is also home to Canada s largest provincial economy, with a significant industrial sector. Figure 2: Ontario Electric Power Mix, April 2016 Source: IESO Ontario has a long history of innovation in energy, being the only province that has developed a significant nuclear power industry 20 total reactors. Ontario also made the decision to phase-out coal-powered generation, which it managed to complete in Over the past decade, the province has developed a renewable energy feed-in-tariff system, which permits both large and small renewable energy producers to feed their energy into the provincial grid and receive a subsidy. What does Ontario plan to achieve through cap-andtrade? The province provided details of its strategy through Bill 172, Climate Change Mitigation and Lowcarbon Economy Act, 2016, which states two main goals: a) to reduce greenhouse gas in order to respond to climate change, to protect the environment and to assist

3 Page 3 Ontarians to transition to a low-carbon economy; and b) to enable Ontario to collaborate and coordinate its actions with similar actions in other jurisdictions 10 Everything will get started in 2017, with the intention of reducing greenhouse gases 37 percent below 1990 levels by Central to the plan is the sale of carbon allowances to industry that will garner in excess of $1.8 billion; the province intends to reinvest this revenue in programs aiming to improve the environment such as environmental research and development, public transportation, and renewable energy sources. The program emissions cap: equates to the total number of carbon allowances that will be sold by the government, with one allowance being equal to one tonne of greenhouse gas emissions. Emitters are expected to purchase sufficient credits to cover their emissions in a given year the plan allows for free credit allocation to competitively sensitive industries until the end of the first compliance review period in The province s overall carbon strategy moves beyond the industry and power sectors to target homeowners and drivers, too, imposing a gasoline tax and natural gas home heating taxes. The challenges Ontario could face in implementing this carbon strategy through the WCI are similar to the ones noted above: much will depend on the province assigning the right number of carbon allowances not too many and not to few. Management efficiency of the program will also be a significant factor in its success. It also depends on the political climate in Ontario; Canadian provinces are not immune to political debates over energy, as recent pipeline discussions have shown. As for the gasoline and home heating taxes, it could be that over the short term consumers may not notice the proposed 4.3 cents/litre gasoline tax and the approximately $5/month 12 extra they will be paying to heat their homes; gasoline prices have plummeted since 2014 and natural gas has remained at a low price for over five years. However, there is a risk utilities and retailers could be required to purchase emissions units to account for their customers consumption, especially if the economy surges. They would inevitably attempt to pass these costs on to consumers, and that, coupled with the gasoline and natural gas taxes, could potentially cause a consumer backlash. But the potential outcome is significant. A working carbon market including Canada s largest province and America s most populous state could possibly lower emissions at minimal cost to the economy, as opposed to simple taxation measures. Simple taxation could raise revenue but perhaps do little to lower emissions emitters under a taxation scheme could pay their taxes and continue to emit as usual. This cap and trade market could make other jurisdictions take notice and possibly act, something that would support the objective of keeping global warming to below 2 degrees C, the defined goal of the 2015 Paris Climate Conference. Endnotes 1 The major greenhouse gases are carbon dioxide; methane; nitrous oxide; ozone; CFC 12; HCFC-22; Sulfur Hexaflouride. 2 Bureau of Environment, Tokyo Metropolitan Government. Tokyo Cap and Trade: NEW The 5 th Year Result of the Tokyo Cap-and-Trade Program. cap_and_trade.html Accessed April 5, Building a low-carbon economy the UK s contribution to tackling climate change. Committee on Climate Change. December Published by The Stationery Office. Copyright of the Crown. Page Accessed April 5, ABC News. Carbon tax: a timeline of its tortuous history in Australia. July 16, carbon-tax-timeline/ Accessed April 5, New Zealand closes carbon trading loophole. Reuters. May 16, Accessed April 5, Chan, Gabriel et al. The SO 2 Allowance Trading System and the Clean Air Act Amendments of 1990: Reflections on Twenty Years of Policy Innovation. Harvard Kennedy School. January Page 4. Brief_digital_final.pdf+&cd=7&hl=en&ct=clnk&gl=ca Accessed April 5, Chan et al. Page 5. 8 Nesteroff, Mike. The Western Climate Initiative is Dead, Long Live the WCI. Sustainability & Climate Change Reporter. November 23, Accessed April 5, Government of Ontario. Ontario, Quebec and Manitoba Form a Dynamic Alliance to Fight Climate Change. December 7, Accessed April 5, Murray, Hon. Glen R. Minister of the Environment and Climate Change. Bill 172. Climate Change Mitigation and Low-carbon Economy Act, Legislative Assembly of Ontario. locale=en&intranet=&billid=3740 Accessed April 6, Kroft, Jason and Luke Sinclair. Ontario s long awaited cap-andtrade plan. Canadian Energy Law. February 26, ontarios-long-awaited-capandtrade-plan/? utm_source=mondaq&utm_medium=syndication&utm_campaign=vi ew-original Accessed April 6, Kroft and Sinclair.

4 Page 4 US$/bbl WTI Spot - WTI Edmonton Crude - Brent Prices Light Price Price Differentials Differentials (US$/bbl) Differential WTI Brent US$/bbl US$/bbl WTI - Edmonton Light Price Differentials (US$/bbl) Differential WTI Edmonton Light Mar-15 Apr-15 May-15 Jun-15 Jul-15 Aug-15 Sep-15 Oct-15 Nov-15 Dec-15 Jan-16 Feb-16 Mar-16 Apr Mar-10 Mar-11 Mar-12 Mar-13 Mar-14 Mar-15 Mar-16 Spot Prices WTI Brent Cdn.Light* H.Hardisty Year-to-Date Quarter-to-Date SOURCE: EIA. April 11, SOURCE: EIA. US$/bbl 120 WTI - Canadian WTI - Hardisty Heavy Heavy Benchmarks Price (US$/bbl) Differentials US$/bbl 50 NYMEX WTI Crude Forward Curve 4 contract months Jan Feb Apr-16 WTI Hardisty Heavy WCS 25 0 Mar-10 Mar-11 Mar-12 Mar-13 Mar-14 Mar-15 Mar SOURCE: NRCan, EIA, Baytex. SOURCE: EIA, CERI.

5 SOURCE: EIA, CERI. SOURCE: NRCan. Page 5 NYMEX Petroleum Products CDN/US$ Exchange Rate US$/gal CDN/US$ RBOB Gasoline Heating Oil Mar-15 Apr-15 May-15 Jun-15 Jul-15 Aug-15 Sep-15 Oct-15 Nov-15 Dec-15 Jan-16 Feb-16 Mar-16 Apr Mar-10 Mar-11 Mar-12 Mar-13 Mar-14 Mar-15 Mar-16 NYMEX Prices Unleaded Gasoline Heating Oil Year-to-Date Quarter-to-Date April 11, Oil Demand Global in Selected Oil Demand Countries US Products Demand March March 2016 Y-on-Y change MMbpd % 52.0% % 100% 80% % 51.0% 50.5% 50.0% 60% 40% 20% % 49.0% 4Q14 1Q15 2Q15 3Q15 4Q15 1Q16 2Q16 3Q16 4Q16 0% -20% Total Gasoline Jet Fuel Distillate Residual Propane Other Total OECD Total Non-OECD non-oecd Demand share SOURCE: IEA Oil Market Report. SOURCE: EIA Weekly Petroleum Status Report. Relevant Independent Objective

6 SOURCE: IEA Oil Market Report, CERI. SOURCE: IEA Oil Market Report. SOURCE: IEA Oil Market Report. SOURCE: IEA Oil Market Report. Page 6 Global Oil Supply MMbpd Q14 1Q15 2Q15 3Q15 4Q15 1Q16 2Q16 3Q16 4Q16 non-opec Supply OPEC Supply non-opec Share of Global Supply Canadian Oil Production by product Mbpd 5,000 4,500 4,000 3,500 3,000 2,500 2,000 1,500 1, Q15 1Q16 2Q16 3Q16 4Q16 AB L/M/H AB Bitumen SK Other NGLs Synthetic 61.5% 61.0% 60.5% 60.0% 59.5% 59.0% 58.5% 58.0% 57.5% 57.0% Mbpd 14,000 12,000 10,000 8,000 6,000 4,000 2,000 0 Mbpd 3,500 3,000 2,500 2,000 1,500 1, US Oil Production by region 4Q15 1Q16 2Q16 3Q16 4Q16 Alaska California Texas Federal GOM Other Lower 48 NGLs Other OECD Commercial Stocks by region Feb-13 Feb-14 Feb-15 Feb-16 OECD North America OECD Europe OECD Pacific

7 SOURCE: EIA Weekly Petroleum Status Report. SOURCE: IEA Oil Market Report. Page 7 MMb US Commercial Stocks February 26 - March 25, 2016 M-on-M Change Crude Gasoline Distillate Products Total MMb Canadian Stocks on Land 4Q14 1Q15 2Q15 3Q15 4Q15 Relevant Independent Objective

8 Page 8 World Supply and Demand Balance (MMbpd) Q14 2Q14 3Q14 4Q14 1Q15 2Q15 3Q15 4Q15 1Q16 2Q16 3Q16 4Q16 World Demand OECD non-oecd World Supply Non-OPEC OPEC NGLs OPEC Crude Supply - Demand OECD Stocks (MMbbls) Days Cover OPEC Crude Oil Production (MMbpd) Sustainable Production Spare Capacity vs Production Capacity Jan-16 Feb-16 Mar-16 Jan-16 Feb-16 Mar-16 Saudi Arabia Iran UAE Kuwait Qatar Angola Nigeria Libya Algeria Ecuador Venezuela Indonesia WTI Price Projections ($US/barrel) Q15 2Q15 3Q15 4Q15 1Q16 2Q16 3Q16 4Q16 1Q17 High Price Case Reference Case Low Price Case

9 Page 9 Data Appendix Relevant Independent Objective

10 Page 10 A1: Historic Light Sweet Crude Futures Prices ($US per barrel) NYMEX Light Sweet Crude Last 3 Day Avg. When 12-Month Spread Close Average Near Mo. Strip Avg. (1-2 Mo.) Q Q Q Q Q Yr-on-Yr Chg % -39.2% -37.4% -33.1% Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr Yr-on-Yr Chg. -9.3% -10.1% -24.1% -23.9% A2: Historic Crude Product Futures Prices ( US per gallon) NYMEX Unleaded Gasoline NYMEX Heating Oil Last 3 Day Avg. When 12-Month Spread Last 3 Day Avg. When 12-Month Spread Close Average Near Mo. Strip Avg. (1-2 Mo.) Close Average Near Mo. Strip Avg. (1-2 Mo.) Q Q Q Q Q Yr-on-Yr Chg % -25.8% -26.7% -24.1% -44.6% -43.6% -42.9% -36.9% Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr Yr-on-Yr Chg % -19.0% -23.4% -20.4% -31.0% -32.4% -33.0% -29.9% Notes (Tables A1 and A2): Prices are listed by contract month. Close: final contract close on the last day of trading. Last 3 Day Average Close: simple average contract close on last three days of trading. Average When Near Month: simple average closing price on trading days when contract was near month. 12-Month Strip Average: simple average of daily near 12-month contract closing prices in a given contract month. Spread: difference between one-month and two-month forward prices in a given period. Source: New York Mercantile Exchange (NYMEX).

11 Page 11 A3: World Crude Oil Contract Prices (FOB, $US per barrel) Saudi U.A.E. Oman U.K. Norway Russia Venez. Kuwait Ecuador Mexico Nigeria Indon. Arab Lgt Dubai Oman Brent Ekofisk Urals 1 T.J. Light Blend Oriente Isthmus Bonny Lgt Minas Q Q Q Q Q Yr-on-Yr Chg % -41.4% -40.3% -37.2% -37.4% -39.4% -48.5% -42.3% -40.6% -37.1% -38.2% -39.3% Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar Yr-on-Yr Chg % -35.7% -33.5% -31.1% -32.0% -33.0% -43.6% -34.7% -31.3% -31.0% -32.1% -36.0% Notes: 1. Urals is Delivered price at Mediterranean. Contract prices are based on prices at the end of each month. Source: OPEC Monthly Oil Market Report. A4: North American Posted Crude Prices (FOB, $US per barrel) United States Canada ANS 1 Lost Hills Kern R. WTI WTS GCS Okla. Sw. Kans. Sw. Mich. So. Wyo. Sw. CDN Sweet 2 HH Q Q Q Q Q Yr-on-Yr Chg % -35.8% -34.9% -31.7% -35.5% -36.6% -31.7% -30.8% -38.3% -29.0% -34.4% -48.4% Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar Yr-on-Yr Chg % -31.7% -27.2% -25.5% -28.5% -29.3% -25.5% -20.9% -30.6% -19.2% -41.2% -50.0% Notes: 1. ANS is Delivered price on US West Coast. 2. Edmonton Light Sweet prices are discontinued as of May 1, 2014 and replaced by the Canadian Light Crude blend which is traded daily on the Net Energy Index. 3. Hardisty Heavy. Posted prices are based on price at the end of each month. Sources: Oil & Gas Journal; Natural Resources Canada. Relevant Independent Objective

12 Page 12 A5: Crude Oil Quality Differentials (FOB, $US per barrel) Light vs. Heavy Sweet vs. Sour Arab Lt Arab Hv Diff. Isthmus Maya Diff. CDN Sweet 2 HH 2 Diff. GCS WTS Diff Q Q Q Q Q Yr-on-Yr Chg % -42.6% -37.1% -38.8% -34.4% -48.4% -36.6% -35.5% Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar Yr-on-Yr Chg % -34.9% -31.0% -30.2% -41.2% -50.0% -29.3% -28.5% Notes: 1. Edmonton Light Sweet prices are discontinued as of May 1, 2014 and replaced by the Canadian Light Crude blend which is traded daily on the Net Energy Index. 2. Hardisty Heavy. Based on contract prices at the end of each month. Sources: OPEC Monthly Oil Market Report: Oil & Gas Journal; Natural Resources Canada. A6: Crude Oil Spot Prices and Differentials (FOB, $US per barrel) Spot Prices Differentials WTI Brent Dubai Urals Basket 1 WTI-Brent WTI-Dubai WTI-Urals WTI-Basket Q Q Q Q Q Yr-on-Yr Chg % -37.1% -40.9% -38.9% -40.4% Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar Yr-on-Yr Chg % -31.3% -35.6% -32.8% -33.9% Notes: 1. OPEC-Reference Basket is average price of seven crude streams: Algeria Saharan Blend, Dubai Fateh, Indonesia Minas, Mexico Isthmus, Nigeria Bonny Light, Saudi Arabia Light and Venezuela Tia Juana Light. Source: OPEC Monthly Oil Market Report.

13 Page 13 A7: World Petroleum Product Spot Prices ($US per barrel) US Gulf Coast, Pipeline Rotterdam, Barges Singapore, Cargoes Gasoline 1 No. 6 3% 2 Jet/Ker. Gasoline 1 Gasoil Resid. 3 Gasoline 1 Gasoil Resid Q Q Q Q Q Yr-on-Yr Chg % -52.3% -39.1% -31.4% -41.3% -54.1% -26.5% -40.8% -48.5% Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar Yr-on-Yr Chg % -48.6% -34.3% -35.6% -35.2% -49.1% -28.6% -35.6% -44.8% Notes: 1. Regular unleaded gasoline. 2. Waterborne 3. High Sulfur ( %) Residual Fuel Oil. Spot prices are based on average daily prices over a specific timeframe. Source: IEA Oil Market Report. A8: Product Spot Prices in Selected American Cities ( US per gallon) NY Harbor US Gulf Los Angeles Gasoline 1 No. 2 H.O. Distill. Gasoline 1 Jet Fuel Distill. Gasoline 1 Distill Q Q Q Q Q Yr-on-Yr Chg % -40.6% -42.0% -30.3% -39.2% -39.1% -27.4% -37.7% Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar Yr-on-Yr Chg % -30.6% -35.9% -27.7% -34.4% -34.1% -24.2% -31.0% Notes: 1. Reformulated regular unleaded gasoline. Spot prices are based on average daily prices over a specific timeframe. Source: EIA Weekly Petroleum Status Report. Relevant Independent Objective

14 Page 14 B1: World Petroleum Supply and Demand Balance (million barrels per day) OECD Non-OECD OPEC World N. A. Europe Asia-Pac Total 1 Asia Non-Asia FSU Total 1 P. Gulf Non-Gulf Total 2 Total 3 Demand Q Q Q Q Q Q Q Q Q Supply Q Q Q Q Q Q Q Q Q Balance Q Q Q Q Q Q Q Q Q Notes: 1. Totals for OECD and non-oecd supply include net refining gains; specific regions/groupings within each do not. 2. OPEC demand is an estimate based on historical annual data. 3. Balance for World equals global stockbuilds (+) and stockdraws (-) for crude oil and petroleum products and miscellaneous gains and losses. Regional surpluses (+) and deficits (-) are balanced through net-imports and stock changes in the short-term, and net-imports in the longer term. Supply includes crude oil, condensates, NGLs, oil from non-conventional sources and processing gains. Demand is for petroleum products. Source: IEA Oil Market Report.

15 Page 15 B2: World Petroleum Production (million barrels per day) OECD Non-OECD OPEC World N. A. Europe Asia-Pac Total Asia Non-Asia FSU Total P. Gulf Non-Gulf Total Total Q Q Q Q Q Yr-on-Yr Chg. -0.8% 3.8% 7.0% 0.0% -12.2% -4.6% 0.9% -4.0% 6.2% -3.5% 6.5% 1.3% Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar Yr-on-Yr Chg. -2.6% 2.6% 24.3% -1.5% -13.6% -4.8% 0.7% -4.5% 3.9% -5.4% 4.5% 0.0% R/P Ratio Notes: 1. Production includes crude oil, condensates and NGLs. 2. Reserve-Production ratio is based on latest month production and British Petroleum reserve estimates. Sources: IEA Oil Market Report and BP Statistical Review of World Energy. B3: OECD Commercial Petroleum Stocks (million barrels) North America Europe Asia-Pacific OECD Crude Product Total Crude Product Total Crude Product Total Crude Product 1 Total , ,337 2, , ,020 1,401 2, , ,208 1,502 3,015 4Q , ,020 1,401 2,712 1Q , ,148 1,372 2,815 2Q , ,171 1,423 2,906 3Q , ,158 1,498 2,984 4Q , ,208 1,502 3,015 Yr-on-Yr Chg. 16.0% 6.4% 10.2% 16.2% 11.5% 12.4% 31.3% -1.8% 11.8% 18.4% 7.2% 11.1% Feb , ,096 1,377 2,761 Mar , ,148 1,372 2,815 Apr , ,158 1,382 2,842 May , ,171 1,425 2,905 Jun , ,171 1,423 2,906 Jul , ,161 1,434 2,914 Aug , ,162 1,490 2,976 Sep , ,158 1,498 2,984 Oct , ,194 1,469 2,987 Nov , ,184 1,503 3,003 Dec , ,208 1,502 3,015 Jan , , ,210 1,534 3,053 Feb , , ,230 1,523 3,060 Yr-on-Yr Chg. 12.4% 11.0% 11.4% 10.8% 12.4% 11.3% 14.4% 2.8% 8.0% 12.3% 10.6% 10.9% Notes: 1. Product includes only finished petroleum products. 2. Total stocks include NGLs, refinery feedstocks, additives/oxygenates and other hydrocarbons. All stocks are closing levels for respective reporting period. Source: IEA Oil Market Report. Relevant Independent Objective

16 Page 16 B4: OPEC Crude Oil Production and Targets (million barrels per day) Persian Gulf Non-Persian Gulf OPEC-11 OPEC-11 Arabia Iran UAE Kuwait Qatar Venez. Nigeria Libya Algeria Angola Ecuador Total 1 Target Iraq Q Q Q Q Q Yr-on-Yr Chg. 3.4% 12.4% -1.1% 1.1% -1.5% -1.3% -2.2% -2.7% -0.9% 0.0% -1.8% 4.9% 22.3% Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar Yr-on-Yr Chg. 0.0% 18.3% -3.9% 1.1% -1.5% -2.1% -2.3% -29.2% -0.9% 2.9% -1.8% 3.4% 13.2% Quotas Over/Under % -1.2% 23.0% 27.5% -8.2% 18.1% 1.8% -76.9% -7.5% 18.4% 25.6% -5.7% Notes: 1. Does not include NGLs; OPEC production targets apply to crude oil only. 2. Iraq does not have an official OPEC target. 3. OPEC-10 production targets. 4. As of latest month. Source: IEA Oil Market Report. B5: OECD Refinery Activity Crude Input (MMbpd) - Utilization (percent) - Refining Margins ($US/barrel) North America Europe Asia-Pacific OECD Input Util. Margin 1 Input Util. Margin 2 Input Util. Margin 3 Input Util Q Q Q Q Q Yr-on-Yr Chg. 1.1% % 3.9% 7.8% 0.5% % 1.8% Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb Yr-on-Yr Chg. 1.3% -61.3% -2.5% -45% 1.8% -63.8% 0.1% Notes: 1. Based on dated Brent being processed in average US Gulf cracking refinery. 2. Based on dated Brent in average Rotterdam cracking refinery. 3. Based on spot Dubai in average Singapore hydroskimming refinery. Source: IEA Oil Market Report.

17 Page 17 C1: US Petroleum Supply and Demand Balance (million barrels per day) United States 1 East Mid-West Supply Demand Net-Imp. Stk. Chg. Supply Demand Balance Supply Demand Balance Q Q Q Q Q Yr-on-Yr Chg. 3.5% -0.5% -6.8% 13.1% -1.5% 5.1% -2.5% Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan Yr-on-Yr Chg. 3.2% -1.0% 0.6% 23.1% -6.0% 3.3% 2.5% % of Total % 100.0% 3.0% 27.9% 24.9% 26.4% South-Central North-West West Supply Demand Balance Supply Demand Balance Supply Demand Balance Q Q Q Q Q Yr-on-Yr Chg. 3.8% 0.4% 6.9% -4.9% -6.9% 4.9% Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan Yr-on-Yr Chg. 2.5% 1.5% 4.1% -8.6% 0.8% 0.1% % of Total % 28.1% 7.3% 3.5% 9.3% 14.1% Notes: 1. Does not balance because of unaccounted for crude oil. Regional surpluses (+) and deficits (-) are balanced through net-imports/transfers and stock changes in the short-term, and net-imports/transfers in the longer term. 2. As of most recent month. Supply includes crude oil, condensates, NGLs, oil from nonconventional sources and processing gains. Demand is for petroleum products. Source: EIA Petroleum Supply Monthly. Relevant Independent Objective

18 Page 18 C2: US Petroleum Demand by Product (million barrels per day) Finished Petroleum Products NGLs Petroleum Gasoline Jet Fuel Distil. Resid. Total 1 Total Total Q Q Q Q Q Yr-on-Yr Chg. 1.3% 4.5% -6.1% -0.1% -0.6% -0.6% -0.5% Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan Yr-on-Yr Chg. -0.6% 6.0% -9.9% 24.6% -2.3% 4.6% -1.0% Notes: 1. Total includes other finished petroleum products. 2. Total petroleum demand includes refinery feedstocks, additives/oxygenates and other hydrocarbons. Source: EIA Petroleum Supply Monthly. C3: US Petroleum Stocks (million barrels) Petroleum Stocks 1 Crude Oil Finished Products East Mid-West S-Cent N-West West U.S. Total 2 Gasoline Jet Fuel Distil. Resid. Total , ,760 1, , ,856 1, , ,015 1, Q , ,856 1, Q , ,908 1, Q , ,971 1, Q , ,001 1, Q , ,015 1, Yr-on-Yr Chg. 22.2% 15.8% 5.7% 8.5% 2.7% 8.5% 8.5% -7.1% 7.3% 18.1% 25.3% 13.3% Jan , ,874 1, Feb , ,878 1, Mar , ,908 1, Apr , ,935 1, May , ,958 1, Jun , ,971 1, Jul , ,969 1, Aug , ,991 1, Sep , ,001 1, Oct , ,009 1, Nov , ,022 1, Dec , ,015 1, Jan , ,041 1, Yr-on-Yr Chg. 22.2% 14.0% 6.1% 9.3% 6.3% 8.9% 7.4% -10.4% 10.4% 21.7% 28.6% 14.9% Notes: 1. Petroleum stocks include crude oil, finished products, NGLs, refinery feedstocks, additives/oxygenates and other hydrocarbons. 2. Includes Strategic Petroleum Reserves. 3. Total includes other finished petroleum products. All stocks are closing levels for respective reporting period. Source: EIA Petroleum Supply Monthly.

19 Page 19 C4: US Petroleum Net Imports by Source (million barrels per day) Region of Origin OPEC Canada Mexico Lat. Am. Europe Africa M.E. Total 1 Venez. S. Arabia Nigeria Total 2 P. Gulf Q Q Q Q Q Yr-on-Yr Chg. 1.6% % 19.0% 322.1% 26.1% 16.2% -6.8% 23.2% 26.0% 203.7% 15.1% 16.4% Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan Yr-on-Yr Chg. 8.1% % -0.8% 39.5% 94.1% 13.7% 0.7% 8.2% 28.9% 241.7% 19.7% 13.7% % of Total % -0.5% 12.8% -3.6% 4.7% 31.0% 100.0% 13.3% 21.7% 2.5% 58.1% 31.1% Notes: 1. Total includes net-imports from Russia and Asia-Pacific region. 2. Total OPEC includes the other eight cartel members. 3. As of latest month. Source EIA Petroleum Supply Monthly. C5: US Regional Crude Oil Production (million barrels per day) PAD District U.S. Major Producers East Mid-West S-Cent N-West West Total Alaska Calif. 1 Louis. Texas G. of Mex Q Q Q Q Q Yr-on-Yr Chg. 6.7% 0.6% 8.1% 19.1% -5.8% 5.7% -2.9% -7.9% -8.9% 4.5% 15.4% Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan Yr-on-Yr Chg. 2.6% 2.4% 3.8% 13.7% -3.7% 3.3% 1.1% -7.7% -8.0% -0.1% 12.0% R/P Ratio Notes: 1. California includes Federal Offshore crude oil production. 2. Gulf of Mexico includes Federal Offshore production adjacent to Texas and Louisiana. 3. Crude oil Reserve-Production ratio as of latest production month. Crude oil production does not include NGLs. Source: EIA Petroleum Supply Monthly. Relevant Independent Objective

20 Page 20 C6: US Refinery Activity Crude Input (MMbpd) - Utilization (percent) East Mid-West South-Central North-West West U.S. Input Util. Input Util. Input Util. Input Util. Input Util. Input Util Q Q Q Q Q Yr-on-Yr Chg. 4.1% -2.1% 2.6% 1.7% -1.9% 0.9% Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan Yr-on-Yr Chg. 4.7% 8.6% 2.3% -1.5% 1.3% 3.5% % of Total 1 6.9% 22.7% 51.3% 3.5% 15.6% 100.0% Notes: 1) As of most recent month. Source: EIA Petroleum Supply Monthly. C7: US Refinery Margins ($US per barrel) NY Harbor Chicago US Gulf Los Angeles (East Coast Comp.) (WTI) (WTS) (ANS) Q Q Q Q Q Yr-on-Yr Chg % -51.9% -38.9% -32.4% Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar Yr-on-Yr Chg % -48.4% -41.5% -30.6% Note: Based on specific crude being processed in average cracking refinery in a given area. As of February 2010, NY Harbor Arab Med. is now East Coast Composite. Source: Oil and Gas Journal.

21 Page 21 D1: Canada Petroleum Supply and Demand Balances (million barrels per day) Canada East West Supply Demand Net-Exp Stk. Chg. Supply Demand Balance Supply Demand Balance Q Q Q Q Q Yr-on-Yr Chg. 2.3% -5.3% 7.5% -18.8% -3.4% 3.8% -8.1% Dec Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Yr-on-Yr Chg. 4.4% -9.0% 14.1% -2.4% -6.3% 4.8% -13.0% % of Total % 100.0% 6.3% 62.1% 93.7% 37.9% Notes: 1. As of most recent month. See notes for Table C1 for additional comments. Source: Statistics Canada s Energy Statistics Handbook. D2: Canada Demand by Product (million barrels per day) Finished Products NGLs Petrol. Gasoline Distil. Resid. Total 1 Total Total Q Q Q Q Q Yr-on-Yr Chg. -3.0% -7.4% -34.5% -4.0% 0.0% -2.9% Dec Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Yr-on-Yr Chg. -4.8% -4.1% -95.3% -5.5% 0.0% -4.0% Notes: 1. Total includes other finished petroleum products. 2. Total petroleum demand includes refinery feedstocks, additives/oxygenates and other hydrocarbons. Source: Statistics Canada s Energy Statistics Handbook. D3: Canada Petroleum Stocks (million barrels) Finished Products Crude Oil Petrol. Gasoline Distil. Resid. Total 1 Total Total Q Q Q Q Q Yr-on-Yr Chg % -15.5% 8.0% -12.3% 1.0% -3.8% Dec Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Yr-on-Yr Chg % -15.5% 8.0% -12.3% 1.0% -3.8% Notes: 1. Total includes other finished petroleum products. 2. Total petroleum stocks include NGLs, refinery feedstocks, additives/ oxygenates and other hydrocarbons. All stocks are closing levels. Source: Statistics Canada s Energy Statistics Handbook. Relevant Independent Objective

22 Page 22 D4: Canada Crude Oil Production (million barrels per day) Major Producers Canada Petroleum Type Alta. Sask. B.C. N.W.T. Atlantic Total 1 Light SCO Heavy Bitumen NGLs Q Q Q Q Q Yr-on-Yr Chg. 5.2% -1.4% 5.0% 1.1% -22.2% 2.6% -13.4% -2.1% -4.2% 18.0% -7.8% Dec Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Yr-on-Yr Chg. 6.9% -1.6% -3.4% 4.7% -3.7% 4.7% -9.7% 2.5% -3.8% 18.2% -8.5% Note: Total includes small amounts of production from Manitoba and Ontario. Source: Statistics Canada s Energy Statistics Handbook. D5: Canada Petroleum Imports by Source (thousand barrels per day) Non-OPEC OPEC Imports Mexico U.S. U.K. Norway Total 1 Algeria Nigeria S. Arabia Venez. Total 2 P. Gulf Total Q Q Q Q Q Yr-on-Yr Chg % 58.9% -42.0% -1.1% -23.0% -53.1% -32.9% -5.1% Dec Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Yr-on-Yr Chg % 0.0% 0.0% -99.9% -12.4% % 0.0% 0.0% % 0.0% -15.4% % of Total 3 0.0% 0.0% 0.0% 0.0% 100.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 100.0% Notes: 1. Includes all non-opec production. 2. Includes production by the other seven OPEC members. 3. As of most recent month. Sources: Statistics Canada s Energy Statistics Handbook.

23 Page 23 E1: World Drilling Activity (active oil and gas rigs) OECD Non-OECD OPEC World N. A. Europe Asia-Pac Total Asia Non-Asia Total 1 P. Gulf Non-Gulf Total Total , , , , , , , , ,337 1Q , , ,950 2Q , , ,177 3Q , , ,187 4Q , ,033 1Q ,729 Yr-on-Yr Chg % -20.2% -51.6% -55.1% -17.8% -28.3% -24.4% -3.9% -17.7% -8.7% -41.4% Mar-15 1, , ,555 Apr-15 1, , ,268 May-15 1, , ,127 Jun-15 1, , ,136 Jul-15 1, , ,165 Aug-15 1, , ,226 Sep-15 1, , ,171 Oct-15 1, , ,086 Nov , ,047 Dec , ,966 Jan ,889 Feb ,748 Mar ,550 Yr-on-Yr Chg % -25.9% -63.6% -54.6% -17.1% -30.7% -25.6% -5.0% -13.2% -7.8% -39.3% % of Total % 5.4% 0.5% 44.1% 11.3% 15.7% 27.0% 19.5% 9.4% 28.9% 100.0% Notes: 1. Does not include active rigs in the Former Soviet Union and onshore rigs in China. 2. As of latest month. Source: Baker Hughes, Inc. E2: North American Drilling Activity (active oil and gas rigs) United States Canada North America 1 East Mid-West S-Cent N-West West Total Land 2 Offshore Total Oil Gas Total , ,761 1, , , , ,861 1, , , ,170 1Q ,380 1, , ,688 2Q ,008 3Q ,056 4Q Q Yr-on-Yr Chg % -63.0% -96.1% 161.9% 257.3% -60.4% -60.9% -46.0% -47.2% -57.1% -62.1% -58.0% Mar ,109 1, , ,304 Apr ,066 May Jun Jul ,049 Aug ,089 Sep ,031 Oct Nov Dec Jan Feb Mar Yr-on-Yr Chg % -58.7% -95.1% 207.7% 225.9% -56.9% -57.7% -37.6% -54.9% -55.2% -62.8% -56.6% % of Total 3 5.0% 21.1% 5.7% 42.5% 15.6% 84.4% 79.7% 4.7% 15.6% 83.5% 16.5% 100.0% Notes: 1. Excluding Mexico. 2. Includes drilling on inland waterways. 3. As of latest month. Source: Baker Hughes, Inc. Relevant Independent Objective

24 Page 24 Geographical Specifications 1. The World: OECD is comprised of countries from three regions: North America (Canada, Mexico, US); Europe (Austria, Belgium, Czech Republ ic, Denmark, Finland, France, Germany, Greece, Hungary, Iceland, Ireland, Italy, Luxembourg, the Netherlands, Norway, Poland, Portugal, the Slovak Republic, Spain, Sweden, Switzerland, Turkey, UK); and Asia-Pacific (Australia, Japan, New Zealand, South Korea). OPEC is comprised of Persian Gulf (Iran, Iraq, Kuwait, Qatar, Saudi Arabia, United Arab Emirates) and non-persian Gulf countries (Algeria, Indonesia, Libya, Nigeria, Venezuela). Non-OECD is comprised of countries from three regions: Former Soviet Union (Armenia, Azerbaijan, Belarus, Georgia, Kazakhstan, Kirghizstan, Moldova, Russia, Crude Oil Qualities Producing API Country or Gravity Region F) Sulfur Content (%) BBLs/Metric Tonne Crude Stream Tapis Blend Malaysia Ekofisk Blend Norway WTI Texas GCS Gulf of Mexico Oklahoma Sweet Oklahoma Kansas Sweet Kansas Wyoming Sweet Wyoming ELS Alberta Brent Blend United kingdom Bonny Light Nigeria Oman Blend Oman Arabian Light Saudi Arabia Minas Indonesia Isthmus Mexico Michigan Sour Michigan WTS Texas Urals Russia Tia Juana Light Venezuela Dubai U.A.E Lost Hills California Cano Limon Colombia Arabian Heavy Saudi Arabia ANS Alaska Oriente Ecuador Hardisty Heavy Alberta Maya Mexico Kern River California Tajikistan, Turkmenistan, Ukraine, Uzbekistan); Asia (including non-oecd Oceania); and non-asia (Africa, Middle East, Latin America, and non- OECD Europe). 2. United States: East (PADD I) New England (Connecticut, Maine, Massachusetts, New Hampshire, Rhode Island, Vermont); Central Atlantic (Delaware, Maryland, New Jersey, New York, Pennsylvania, and the District of Columbia) and Lower Atlantic (Florida, Georgia, North Carolina, South Carolina, Virginia, and West Virginia). Mid -West (PADD II) Illinois, Indiana, Iowa, Kansas, Kentucky, Michigan, Minnesota, Missouri, Nebraska, North Dakota, Ohio, Oklahoma, South Dakota, Tennessee, and Wisconsin. South-Central (PADD III) Alabama, Arkansas, Louisiana, Mississippi, New Mexico and Texas. North-West (PADD IV) Colorado, Idaho, Montana, Idaho, Montana, Wyoming. West (PADD V) Alaska, Arizona, California, Hawaii, Nevada, Oregon, Washington. 3. Canada: East is comprised of Ontario, Manitoba, Quebec and the Maritime provinces (New Brunswick, Newfoundland and Labrador, Nova Scotia, and Prince Edward Island). West is comprised of Alberta, British Columbia, Saskatchewan and the northern territories (NorthWest Territories, Nunavuut, and Yukon). Additional Notes 1. Petroleum and oil refer to crude oil and natural gas liquids (NGLs), whereas crude oil refers to its namesake and field condensates. Condensates derived from natural gas processing plants are classified as NGLs. 2. The spot price is for immediate delivery of crude oil or refined products at a specific location. Spot transactions are generally on a cargo by cargo basis. In contrast, a futures price is for delivery of a specified quantity of a commodity at a specified time and place in the future. 3. Crude oil sold Free-On-Board (FOB) is made available to the buyer at the loading port at a particular time, with transportation and insurance the responsibility of the buyer. Crude oil sold Cost-Insurance-Freight (CIF) is priced at a major destination point, with the seller responsible for the transportation and insurance to that point. A Delivered transaction is similar to a CIF transaction, except the buyer in the former pays based on the quantity and quality ascertained at the unloading port, whereas in a CIF transaction, the buyer accepts the quantity and quality as determined at the loading port. 4. Processing gain is the volume of which refinery output is greater than crude oil inputs. The difference is due to the processing of crude oil products, which in total have a lower specific gravity than crude oil. 5. Unaccounted for crude oil reconciles the difference between crude input to refineries and the sum of domestic production, net imports/exports, stock changes and documented losses (in the U.S.). 6. Totals may not equal the sum of their parts in the statistical tables due to rounding. For more information, please contact Dinara Millington at dmillington@ceri.ca. Canadian Energy Research Institute 150, Street NW Calgary, AB T2L 2A6