WESTERN CANADIANSELECT EXPLAINED

Oil Sands Magazine • February 20, 2016

Western Canadian Select is often advertised as Canada'sdiscounted heavy oil produced exclusively for the US

market. But there's a lot more to that story ...

What is Western Canadian Select?WCS is North America's largest heavy oil

benchmark comprised of:20 heavy conventional oil streamsAthabasca bitumen from the Alberta oil sandsupgraded bitumen, or light synthetic crude oil (SCO)condensate, added to reduce pipeline viscosity.

What is a benchmark?A benchmark is a specific grade of crude oil

priced out of a specific location: West Texas Int.• 39.6° API• 0.25% sulphur• Cushing, OK

North Sea Brent• 38.3° API• 0.37% sulphur• Sullom Voe, UK

W. Cdn Select• 21° API• 3.3% sulphur• Hardisty, AB

Why was WCS created?There are dozens of different heavy oil streams producedin Western Canada, each with varying degrees of quality.Each grade of oil requires separate pipeline and storagespace, creating a marketing and distribution nightmare. In order to fix this problem, 4 oil producers - Suncor,Cenovus, CNRL and the former Talisman Energy, createdthe WCS heavy oil blend in 2004.

What are the specs for WCS andhow "heavy" is this crude?

WCS is heavy (bordering onmedium) on the API scale andquite sour, having a sulphur

content well above 0.5%.

20.5 to 21.5° API3.0 to 3.5% sulphur

925 to 935 kg/m³

How does WCS compare to otherbenchmark crudes?

US refineries balance out light domestic oil with heavyforeign imports, such as WCS. WCS is closest in quality

to Mexican Mayan crude.Average API US produced crude: 40 to 45°Average API US oil imports: 20 to 25°Average API US refinery input: 32°

Why is heavy oil so desireable?High-conversion refineries make more money by

processing heavy sour crude, such as WCS. Theserefineries crack and coke the heavy crude "bottoms" and

remove all traces of sulphur to produce value-addedlow-sulphur gasoline and diesel fuels.

How much heavy oil doesCanada produce?

Canada produces about 4 million bbl/day of crude oil.Western Canada produces 2.8 million bbl/day of heavyoil, much of it from the oil sands.Western Canada also produces 400,000 bbl/day ofconventional heavy oil.

How much ofCanada's heavy oil

is upgraded intolight sweet crude?

35% of Alberta's heavy oilis upgraded into light

synthetic sweet crude oil.

The remaining 65% isblended and sold to market

as heavy sour crude oil,including WCS, diluted

bitumen and conventionalheavy oil.

Canadian heavy oil sales tomarket by type:

Where does all this Canadian oil go?

Production: 4 Mbbl/dayConsumption: 2 Mbbl/dayExports: 3 Mbbl/dayImports: 1 Mbbl/day

Canadian crude oil ... 95% of Canada's heavy oil isexported to the US. Most of

Canada's conventional light oil isprocessed in Canadian refineries.

East Coast refineries importforeign oil due to pipeline

constraints.

Where is Canadianheavy oil consumed?

Only 14% of Canada's oil isexported to the Gulf Coast due

to pipeline constraints. GulfCoast (PADD III) refineries rely

heavily on crude-by-rail and would have benefited greatly

from the Keystone XL pipeline.

Destination for Canadianoil exports to US:

64% of Canada's oil is exportedto PADD II refineries, centred

around Chicago, IL. PADD II hasa refining capacity of 3.8 million

bbl/day.

PADD III has triple the refiningcapacity of PADD II.

How is WCS priced?Unlike other benchmark crudes, WCS Crude Oil

Futures Contracts reflect the differential to WTI andnot the actual WCS price. WCS contracts trade on theChicago Mercantile Exchange (CME). Monthly average

settlement prices are also posted on the NationalEnergy Board (NEB) website.

Is WCS cheap because it's heavy & sour?Sale price is a function of transportation costs, notquality. For example:

California Kern is the heaviest N. American crude, muchheavier than WCS but sells on par with WTI. The Kern blendis processed directly in California refineries with minimaltransportation costs.Mexican Mayan crude is identical in quality to WCS but sellsfor $10/bbl more due to easy access to Gulf Coast refineries.

US refinery feedstock price at point of discharge, USD/bbl (Sep. 2015 average from EIA & NEB )

Who pays the transport costs?Benchmark prices reflect the sale price at the point of delivery,

commonly termed FOB (free on board). The refinery has tofactor in crude shipment to its facility. A refinery will always

pick the cheapest crude, so high shipping costs will drive downthe selling price. Therefore, the same stream of crude will

have a different selling price at different locations.

What's the best way to increase the sale price of WCS?

LOWESTWCS

DISCOUNT

CLOSESTBIGGEST

CUSTOMER

CHEAPESTSHIPPINGMETHOD

KEYSTONEXL PPL

US GULFCOAST

HIGHERWCS PRICE

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The End!For more information on Canadian heavy oil,

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