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FACT CHECK: Bitumen bubble? The trend of Alberta bitumen prices through time.

A recent state of the province address and subsequent commentary from Alberta Premier Alison Redford has laid the blame for provincial revenue shortfalls squarely at the feet of the recent slump in the price of bitumen versus West Texas Intermediate (WTI). But how does this square with the real numbers? Monthly prices for WTI and Western Canadian Select (WCS), which is bitumen mixed with diluent to allow for pipeline transport were obtained from http://www.sproule.com/. WCS has been marketed since 2005. In this fact check, we are only looking at two variables: 1. What has the historical ratio of WTI to WCS been? 2. What has been the historical price trend of WCS? In order for the Albertan premiers assertion that the value of bitumen returns to the province has been significantly curtailed to be substantiated, we would expect that the data would show a trend through time of an erosion of WTI to WCS price ratio, and that the price of WCS has not appreciated substantially over time. WTI vs WCS price ratio The graph below shows the price of WCS to WTI over time.
Percentage return, Western Canadian Select versus West Texas Intermediate
120.00%

100.00%

80.00%

60.00%

40.00%

20.00%

0.00% Jan-05

Jan-06

Jan-07

Jan-08

Jan-09

Jan-10

Jan-11

Jan-12

It is clear that although there have been fluctuations in the price ratio over time, that the ratio has been largely consistent through time. The WTI to WCS ratio since 2005 has been 81.24%, and

since the election of the Alberta premier on April 23 2013 has been 78.20%, a difference of 3.04%. This ratio only has importance when considered with the price of WCS over time, as shown below.
WCS price January 2005 to December 2013
140.00

120.00

100.00

80.00

60.00

40.00

20.00 WCS price 0.00 Jan-05 Jan-06 Jan-07 Jan-08 Jan-09 Jan-10 Jan-11 Jan-12

It is clear from this data that the price of WCS has been steadily increasing since 2005. It should also be noted that the crash of oil prices in late 2008 was short lived, and by March 2009, prices had returned to pre-crash levels. Based on the information presented here it is difficult to substantiate that the 6 billion dollar shortfall in government revenues has been caused by a bitumen bubble. The data presented here shows a commodity that has had much less price fluctuation than other commodities such a natural gas, and has shown a mostly consistent rise through time. The Alberta government enjoyed a WCS price of $73.04 in 2012, which is 166% higher than the $43.83 average price of 2005. The decrease in price of WCS in 2012 was $4.05 compared to the record year of 2011, which clearly does not represent a bubble bursting. It is clear that bitumen has contributed significant monies to the provincial treasury of Alberta and that this has with the exception of minor variability increased through time up to and including 2012. There is no argument that can be forwarded that demonstrates that the value of bitumen to the Province of Alberta has undergone a significant decline.